Current assets in accounting: What they are and how to manage them

When you’re running a business, knowing how much cash you have isn’t enough. You need to understand what resources are on hand, what’s incoming, and what can be quickly converted to keep operations running smoothly. That’s where current assets come in.

In this guide, we’ll break down what current assets are, how to calculate them, and why they matter—so you can make sharper, faster decisions with your company’s money.

What are current assets?

Current assets are short-term resources a business expects to use, sell, or convert into cash within one year—or within its normal operating cycle, whichever is longer. 

They’re essentially the assets that keep your business moving day-to-day, covering payroll, paying vendors, and funding inventory restocks.

Think of them as the financial fuel for your operations. Unlike long-term assets like property or equipment, current assets are liquid or near-liquid, meaning they can be quickly turned into cash to meet immediate obligations.

Importance of current assets in financial management

These current assets are a key indicator of your business’s short-term financial health. 

They help answer essential questions: Can you pay your bills on time? Do you have enough liquidity to handle unexpected expenses?

By tracking current assets, you gain clearer visibility into:

• Liquidity: Your ability to cover short-term obligations without borrowing.
• Cash flow timing: When you’ll receive payments vs. when expenses are due.
• Operational efficiency: How effectively your assets are being converted into cash.

Lenders, investors, and your internal team rely on current asset metrics to evaluate risk and make smart financial decisions. Managing them well can reduce funding gaps and help you grow sustainably.

Where current assets show up on your financials

You’ll find current assets listed at the top of your balance sheet—a financial snapshot showing what your business owns (assets), owes (liabilities), and retains (equity) at a specific point in time.

On the balance sheet, assets are divided into two buckets:

• Current assets: expected to be used or converted to cash within a year
• Non-current assets: long-term resources like equipment or property

Because current assets are the most liquid, they appear first. That’s why understanding what goes into this section is so important—it’s a reflection of how easily your business can cover its short-term needs.

Examples of current assets

Now that you know where current assets sit on the balance sheet, let’s break down what typically falls into this category. 

1. Cash and cash equivalents

Cash equivalents are the most liquid assets, such as

• Physical cash
• Checking accounts
• Treasury bills
• Other short-term investments with maturities of 90 days or less 

They are easily convertible to known amounts of cash and are subject to insignificant risk of changes in value. 

2. Marketable securities

Marketable securities are short-term investments—like government bonds or publicly traded stocks—that can be quickly sold for cash. 

Businesses often use these to earn a return on idle funds without sacrificing liquidity.

3. Accounts receivable

Accounts receivable represents money owed to your business by customers who purchased on credit. 

These outstanding invoices are considered assets because they’re expected to convert to cash in the near term.

4. Inventory

While it isn’t as liquid as cash or receivables, inventory is still a current asset because it’s expected to be sold within the year.

Some examples are

• Raw materials, 
• Goods that are in production
• Finished goods ready for sale

Inventory management also directly affects a company's ability to meet customer demand and manage storage costs.

5. Prepaid expenses

Prepaid expenses are payments made in advance for future services, like rent, insurance, or annual software subscriptions. 

While they can’t be converted to cash, they free up capital for other uses over time. ​

6. Other current assets

Finally, we have a catchall category for other short-term assets that don't fit into the above classifications but are expected to be liquidated or used within a year. 

Examples can include advances to employees or suppliers, or small deposits with vendors. ​

How to calculate current assets

Now that you know what belongs in the current assets category, calculating the total is straightforward. You’re simply summing up all the short-term assets on your balance sheet.

Here’s the basic formula:

Current Assets =

• Cash and Cash Equivalents +
• Marketable Securities +
• Accounts Receivable +
• Inventory +
• Prepaid Expenses +
• Other Current Assets
  
  

Example calculation

Let’s say your balance sheet includes the following:

• Cash and equivalents: $75,000
• Accounts receivable: $40,000
• Inventory: $60,000
• Prepaid expenses: $15,000
• Marketable securities: $20,000
• Other current assets: $5,000
  
  

Total current assets = $75,000 + $40,000 + $60,000 + $15,000 + $20,000 + $5,000 = $215,000

You can usually find these line items grouped under the "Assets" section of your balance sheet. If you're using a modern finance platform, these values may update automatically as transactions occur.

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Managing your current assets effectively with Rho

Effectively managing current assets is crucial for maintaining liquidity, ensuring operational efficiency, and supporting growth. Rho helps exactly with that.

Rho offers a comprehensive financial platform designed to streamline this process, providing tools that integrate banking, expense management, and treasury functions into a cohesive system.

Why choose Rho?

• Integrated financial tools: Rho combines business checking and savings accounts, corporate credit cards, expense management, bill pay, and treasury services into one platform, facilitating seamless management of current assets.​
• Real-time visibility: Monitor cash flow and asset utilization in real-time, enabling informed decision-making and proactive financial management.​
• Automated processes: Automate routine financial tasks such as expense reporting, invoice processing, and reconciliations, reducing manual effort and minimizing errors.​
• Customizable controls: Set spend limits, approval workflows, and merchant restrictions to maintain control over expenditures and safeguard assets.​
  Scalable solutions: Whether you're a startup or an established enterprise, Rho's scalable solutions grow with your business, adapting to evolving financial needs.​
  
  

By leveraging Rho's platform, businesses can enhance the management of current assets, improve financial oversight, and position themselves for sustainable growth.​

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