Current Assets vs. Noncurrent Assets: What’s the Difference?
Current Assets vs. Noncurrent Assets: An Overview
A company’s resources can be divided into two categories: current assets and noncurrent assets. The primary determinant between current and noncurrent assets is the anticipated timeline of their use. Current and noncurrent assets are listed on the balance sheet. They appear as separate categories before being summed and reconciled against liabilities and equities.
- Current assets are assets that are expected to be converted to cash within a year.
- Noncurrent assets are those that are considered long-term, where their full value won’t be recognized until at least a year.
- Current assets include items such as accounts receivable and inventory, while noncurrent assets are land and goodwill.
- Noncurrent liabilities are financial obligations that are not due within a year, such as long-term debt.
- The key difference between current and noncurrent assets and liabilities, which are all listed on the balance sheet, is their timeline for use or payment.
Current assets represent the value of all assets that can reasonably expect to be converted into cash within one year. Current assets are separated from other resources because a company relies on its current assets to fund ongoing operations and pay current expenses.
Examples of current assets include:
Noncurrent assets are a company’s long-term investments where the full value will not be realized within the accounting year. Non-current assets can be considered anything not classified as current.
Examples of non-current assets include:
Since noncurrent assets have a useful life for a very long time, companies spread their costs over several years. This process helps avoid huge losses during the years when capital expansions occur. Both fixed assets, such as PP&E, and intangible assets, like trademarks, fall under noncurrent assets.
Meanwhile, noncurrent liabilities are a company’s long-term financial obligations that are not due within one fiscal year. Noncurrent assets are resources a company owns, while noncurrent liabilities are resources a company has borrowed and must return.
Liabilities are either money a company must pay back or services it must perform and are listed on a company’s balance sheet. Contrary to noncurrent assets, noncurrent liabilities are a company’s long-term debt obligations, which are not expected to be liquidated within 12 months.
Examples of noncurrent liabilities include:
Bonds payable are used by a company to raise capital or borrow money. Bonds payable are long-term lending agreements between borrowers and lenders. A company usually issues bonds to help finance its operations or projects. Since the company issues bonds, it promises to pay interest and return the principal at a predetermined date, usually more than one fiscal year from the issue date. Investors are interested in a company’s noncurrent liabilities to determine whether a company has too much debt relative to its cash flow.