Difference Between Current Assets vs Non Current Assets
The assets of any company can be classified into two major heads: Current assets vs Non current assets. These are available in the balance sheet of a company, which is one of the most important financial statements of companies. Both these heads have their own merits, lags, and utilities to the business.
As the names suggest, Current assets are those groups of assets that can be converted to cash within one financial year. Examples of current assets can be – Short term investments done by the company in another, Marketable securities, Trades Receivables, Cash & Cash Equivalents etc.
Noncurrent assets can be grouped as those set of assets that are not easily converted into cash within one financial year, and, hence, are those that the company holds for a longer duration or life of the company. Examples of noncurrent assets are – Machinery bought by the company, property held for company usage, construction in progress, furnishings and improvements etc.
Depending on the nature of the business, the ratio between the current assets and non current assets will change. A manufacturing company will be having more of noncurrent assets when compared to a retail business firm.
Head to Head Comparison Between Current Assets vs Non Current Assets (Infographics)
Below is the top 7 difference between Current Assets vs Non-Current Assets:
Key Differences between Current Assets vs Non Current Assets
let us discuss some of the significant differences Between Current Assets vs Non Current Assets:
Current assets are also termed short term assets as they are held for up to 1 financial years or 1 operating cycle of the business. These assets are intended for consumption or sale within the same year and for the day to day running of the business. They form an integral part of the working capital of the business.
Example: Cash and Cash balances, Accounts receivables, prepaid expenses
Noncurrent assets also termed “long term assets” are those that are planned to be used for a longer duration of time by the company. Their values are not realized during one operating cycle and are only sold only on depletion, becoming obsolete or less productive.
Example: Land, Machinery, Long term investments
Current assets are further split into more liquid and liquid current assets. Any assets that can be converted into cash within 90 days are the more liquid assets. Examples are – bank balances, cheques, cash & cash balances, accounts receivables with a period of up to 90 days, very short term investment funds, marketable securities etc.
The liquid or lesser liquid current assets are those that can be converted to cash from a period of 90 days to 1 year, like Inventory, prepaid expenses, receivables up to 1 year etc.
Non current assets can be divided into tangible and intangible assets. Tangible assets are those that can be seen and touched like machinery, land, equipment. They are bought by the company for its uses and are also accounted for the depreciation. Intangible assets are those that are not seen or touched but are very important to form a part of a company’s valuation. For e.g. patents, goodwill, copyright issues etc. They also have a decrease in their values due to poor performance or other reasons, and this deduction is termed amortization.
Additional Expenditure – Capital Expenditure and Revenue Expenditure
Expenditure that is done on the non current assets for the purpose of increasing productivity for re-use within the company and not for resale. It is intended to increase productivity and therefore the earning capacity. Since the expenditure is long-term in nature and the business expects to get its return over a longer period of time, it is termed as capital expenditures.
Expenditure is done on current assets for the purpose of running the day to day business, like administration costs. These are costs also incurred in maintaining the noncurrent assets and their earning capacity, for e.g. renewals etc. Revenue expenditure relates only to the current accounting period and in generating revenue of the business for that period.
In case of liquidation of current assets – the cash balances would increase. For e.g, if we receive money from our debtors/accounts receivables, we will be adding it back to our cash balances thus, increasing it.
It will keep the overall impact of the current assets the same.
On the other hand, any gain or loss on sale of noncurrent assets or decrease or increase in the intangible assets would be shown in the company’s profit and loss statement, thus affecting the Net Income of the business.
Change in current assets affects the cash flow from operating activities and changes in the noncurrent assets affect the investing activities of the business.
Current Assets vs Non Current Assets Comparison Table
Let’s look at the top 7 Comparison between Current Assets vs Non Current Assets
|The Basis Of Comparison between Current Assets vs Non Current Assets||
|Meaning||Group of company assets that can be converted to cash within the same financial year of the company or within one operating cycle||Group of company assets that cannot be converted to cash within the same financial year of the company|
|Types||Current Assets can be further split into Quick Assets and Not-So-Liquid Assets||Non-Current Assets constitute Tangible and intangible assets|
|Application of Depreciation||Depreciation is not applicable to Current Assets||Depreciation, Amortization, and Appreciation are applicable to non-current assets|
|Accounting treatment||Liquidation of the current assets affects the cash balances||Buying or selling or any incremental value affects the Net Income of the company|
|Ease of liquidation||Easily converted to cash, therefore easy liquidation||Cannot be easily liquidated|
|Expenditure incurred||Additional expenditure done for the current assets are termed Revenue Expenditure||Additional expenditure done for the current assets are termed Capital Expenditure|
|Purpose||Used to facilitate short-term, day to day operational investments and costs||The present value of non-current assets can be favorably accrued and thus generating profits|
Current assets vs non current assets form an integral part of the company and can be equated to the company’s liabilities and funds. They in a form help us to understand that if required, how much debt and loans the business can repay. Just how current assets help the stakeholders decide how cash-rich a company is or its liquidity position to run the business, the noncurrent assets give a clear picture about the longevity and the plans of the business.
It is very important to compare these assets to gain an understanding of the accounting process and the profit-generation ideas of a company. The senior management of the company checks the balance and quality of the assets to know whether each is adding value to their business, or how well can they be churned to generate better.
This has been a guide to the top difference between Current Assets vs Non Current Assets. Here we also discuss the Current Assets vs Non Current Assets key differences with infographics and comparison table. You may also have a look at the following articles to learn more –