Other Current Assets

What are Other Current Assets?

Other current assets are the assets of the business that are not very common and significant like cash & cash equivalents, inventory, trade receivable, etc. and expect to be converted into cash within 12 months of the reporting date.

In simple words, it is a balance sheet line item that represents all the short-term assetsShort-term AssetsShort term assets (also known as current assets) are the assets that are highly liquid in nature and can be easily sold to realize money from the market. They have a maturity of fewer than 12 months and are highly tradable and marketable in nature.read more that are considered to be too insignificant to be recognized individually. They are specifically denoted as “other” because they are either inconsequential or fairly uncommon, unlike typical current assetsCurrent AssetsCurrent assets refer to those short-term assets which can be efficiently utilized for business operations, sold for immediate cash or liquidated within a year. It comprises inventory, cash, cash equivalents, marketable securities, accounts receivable, etc.read more like cash & cash equivalents, accounts receivableAccounts ReceivableAccounts receivables refer to the amount due on the customers for the credit sales of the products or services made by the company to them. It appears as a current asset in the corporate balance sheet.read more, marketable securitiesMarketable SecuritiesMarketable securities are liquid assets that can be converted into cash quickly and are classified as current assets on a company's balance sheet. Commercial Paper, Treasury notes, and other money market instruments are included in it.read more, inventory, and prepaid expenses.

Some annual reports provide the detailed breakup of these items in the notes to the financial statementsFinancial StatementsFinancial statements are written reports prepared by a company's management to present the company's financial affairs over a given period (quarter, six monthly or yearly). These statements, which include the Balance Sheet, Income Statement, Cash Flows, and Shareholders Equity Statement, must be prepared in accordance with prescribed and standardized accounting standards to ensure uniformity in reporting at all levels.read more. As such, one should always refer the notes if the figures exhibit significant variation or are significantly large enough in entirety (although not significant individually).

Formula

The formula for OCA is calculated by deducting the major asset classes under current assets, such as cash & cash equivalents, accounts receivable, marketable securities, inventory, and prepaid expenses, from total current assets.
Mathematically, it is represented as,

OCA = Total Current Assets – Cash & Cash Equivalents – Accounts Receivable – Marketable Securities – Inventory – Prepaid Expenses
Other-Current-Assets

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For eg:
Source: Other Current Assets (wallstreetmojo.com)

Examples of Other Current Assets

Let’s see some examples to understand it better.

You can download this Other Current Assets Excel Template here – Other Current Assets Excel Template

Example #1

Let us take the example of company XYZ Ltd that had recently published its annual report. The following excerpt of the balance was made available:

  • Cash & Cash Equivalents – $50,000
  • Accounts Receivable – $100,000
  • Marketable Securities – $15,000
  • Inventory – $80,000
  • Prepaid Expenses – $25,000
  • Total Current Assets – $300,000

Determine the OCA based on the given information.

The Calculation of OCA can be done by using the above formula as,

Other current assets example 1.1png

= $300,000 – $50,000 – $15,000  – $100,000 – $80,000 – $25,000

= $30,000

Therefore, as per the available information of the balance, the OCA of XYZ Ltd stood at $30,000.

Example #2

Now, let us take the example of Apple Inc.’s annual report as on September 29, 2018. The following information is available and, based on that, determine the change in OCA during the last one year.

The OCA as on September 29, 2018, can be calculated using the above formula as,

OCA Eg 2png

= $131,339 – $25,913 – $40,388 – $23,186- $3,956 – $25,809

= $12,087

Again, the OCA as on September 30, 2017, can be calculated as,

OCA image 2.1png

= $128,645 – $20,289 – $53,892  – $17,874 – $4,855 – $17,799

= $13,936

So, the OCA for Apple Inc. has decreased from $13,936 Mn to $12,087 in the last one year. However, the reason behind the variation is not known as we do not have a detailed breakup.

Advantages

  • Capturing all the short term assets, which are otherwise individually insignificant and uncommon, under a single category, makes the accounting process easier and simpler.

Disadvantages

Conclusion

So, we can conclude that even though OCA comprise of asset items that are too little to impact the financial position of a company, the individual items cannot be entirely overlooked as it can affect several liquidity ratios if captured erroneously.

Recommended Articles

This article has been a guide to Other Current Assets and its definition. Here we discuss practical examples of other current assets along with its advantages and disadvantages. You may learn more about accounting from the following articles –

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