Business Plan Balance Sheet: Current Assets - dummies

Business Plan Balance Sheet: Current Assets

By Steven D. Peterson, Peter E. Jaret, Barbara Findlay Schenck

Current assets represent all the items on the balance sheet that your business owns that are liquid enough to be converted into cash within a year. Anything with monetary value that your business owns is an asset.

Your balance sheet shows not only how much your assets are worth but also how long it would take you to convert them into cold, hard cash. The length of time needed to dispose of an asset is often described in terms of liquidity. The more liquid an asset, the faster you can sell it off.

Current assets include

  • Cash: You can’t get more liquid than cash. Cash can be anything from the bills and change in the cash register or the petty cash drawer to the money you have in checking or savings accounts at the bank.

  • Investment portfolio: Cash is nice, but it’s even nicer to see your money put to work. Investments may include money market accounts, government bonds, or other reasonably safe securities.

  • Accounts receivable: This asset consists of money customers owe you for products or services you’ve already delivered. If you provide products on credit, you may give customers 30, 60, or 90 days to pay.

    Watch your accounts receivable carefully. One deadbeat customer can throw your numbers for a loop.

  • Inventories: This item reflects the equivalent cash value of products or supplies you have on hand. Coming up with a realistic estimate for the value of your inventories is often tricky. When in doubt, stay on the conservative side. Your balance sheet should reflect what you can reasonably expect to receive if you have to liquidate these assets.

  • Prepaid expenses: Your company may have paid for services you haven’t yet received — professional service retainers or insurance premiums, for example. List these payments as part of your current assets.

Current assets, especially the most liquid ones, are extremely important to your business. They represent reserves available to fund day-to-day operations or to draw on in case of a financial crunch.