Current assets and non-circulating: Understand the difference! [+ Examples]

When it comes to a company's equity bank, there are two terms that constantly raise questions: current assets and non-current assets. Do you know the difference?

In this article, we will not only explain the difference between each one, but we will also show you several assets of a company so that you can differentiate whether they are current or not.

Stay tuned to the end to get your questions answered about current and non-current assets.

Current and non-current assets, what are they?

To begin, it's important to understand what an asset is. By defining this term, you'll be able to understand the rest.

The term "assets" refers to a company's resources, representing everything under its control. This encompasses a wide range of assets, such as real estate, vehicles, equipment, and financial resources (both those already held in bank accounts and those to be received in the future).

When calculating the value of a company's assets, it is necessary to take into account several factors, such as bank balance, registered patents, brand value on the market, amounts receivable, among others.

Assets are divided into two categories: current and non-current assets. See the difference between them.

What are current assets?

Current assets can be defined in simplified terms as the most liquid assets or resources. This means that current assets are those that can be readily consumed or converted into cash through their sale.

This category of assets plays a fundamental role for the business, as it represents a source of financial resources that may be necessary to maintain ongoing operations and, in certain cases, offset any losses that may occur within the company.

By maintaining an adequate level of current assets, a company is able to deal with unforeseen financial challenges, ensuring the availability of capital to meet its operational needs. Thus, current assets function as a reserve that can be used to sustain the company's operations and preserve its financial stability in times of instability or difficulty.

Examples of current assets

See some examples of current assets:

• Cash and cash equivalents: cash, demand deposits and highly liquid short-term investments.
• Accounts receivable: amounts owed by customers for the sale of products or services.
• Stocks: goods or raw materials held by the company to be sold or used in production.
• Short-term investments: securities that will be sold or redeemed within one year.
• Advances to suppliers: advance payments made to the company by suppliers in exchange for products or services.
• Taxes recoverable: amount of taxes that the company is entitled to receive due to tax credits or overpayments.
• Prepaid expenses: advance payments for services or goods that will be consumed over time, such as insurance or rent.
• Consignment stock: goods that are in the company's possession but belong to third parties who have placed them on consignment for sale.
• Other accounts receivable: Amounts owed to the company that do not fall into the main accounts receivable category, such as loans to employees.
• Marketable financial assets: investments in short-term financial securities that can be readily sold in the market.

What is non-current asset?

Non-current assets, although less liquid, play a fundamental role in the company's financial health.

This asset category comprises resources that require more time to be converted into cash. According to the definition, an asset is considered non-current when the time required to convert it into cash is more than one year.

Non-current assets are more long-lasting in nature and include items such as real estate, machinery, long-term vehicles, long-term investments, and patents. Although their conversion into cash may take longer, they play a strategic role in the company's operations, contributing to revenue generation, growth, and long-term sustainability.

These non-current assets can serve as a source of security, added value, and expansion capacity for the company. They represent long-term investments and can generate significant returns over time. Therefore, while they are not as easily converted into cash as current assets, they are essential to the company's financial strategy and ongoing success.

Examples of non-current assets

Now, check out some examples of non-current assets:

• Real estate: properties such as commercial buildings, land, and industrial facilities.
• Long-term vehicles: such as fleets of vehicles used for commercial operations.
• Equipment: machinery, tools and equipment specific to the company's activities.
• Long-term investments: equity interests in other companies or securities with a redemption period of more than one year.
• Intellectual property: patents, trademarks, copyrights and trade secrets.
• Goodwill: value attributed to the reputation, brand image and relationships established by the company over time.
• Intangible assets: such as custom software, software licenses, and technology usage rights.
• Real estate investments: shares in real estate ventures, such as construction projects or rental properties.
• Works of art and collectibles: paintings, sculptures or collectible items that the company owns for investment or exhibition purposes.
• Natural resources: resources exploited by the company, such as mineral reserves, forests or water sources.

What are the types of current and non-current assets?

Now, let's look at the types of current and non-current assets you can find in a company.

Types of current assets

Current assets can be categorized into three distinct types, each with its own specific characteristics. Let's explore each of these categories below:

1. Operating Current Assets: Operating current assets encompass resources related to the company's fundamental operational processes. This includes short-term assets directly linked to the organization's operational activities. A prime example is accounts receivable, which relate to inventory and outstanding invoices. Additionally, other assets, such as machinery and equipment, despite being an essential part of the operation, are not considered current assets due to their low liquidity.
2. Cyclical Current Assets: Cyclical current assets comprise the resources generated by the company's daily activities, directly influencing its routine. Although common, it is crucial to record all these resources to avoid problems in financial management and accounting statements. The main examples of cyclical current assets are goods intended for sale, advances from suppliers, invoices receivable, and payments related to inventory. Generally, cyclical current assets are used to settle liabilities, such as company bills and debts.
3. Net Current AssetsNet current assets, also known as financial assets, encompass all assets acquired through investments made by the company. This type of asset can be classified as current or non-current, depending on the time required for its conversion into cash. When the term is less than one year, the asset is considered current. Examples of net current assets include income from investments in real estate funds, stocks, and public and private bonds.

Types of non-current assets

Non-current assets can be classified into four distinct categories: long-term realizable assets, investments, fixed assets, and intangible assets. Let's take a closer look at each of these:

1. Long-Term Non-Current Assets: Long-term non-current assets encompass all amounts the company expects to receive after the end of the balance sheet period. This includes, for example, loans, financial investments, mutual agreements, tax recoveries, deposits, and trade notes that will be received within a period longer than one year. These resources represent obligations or rights to be realized in a more distant time horizon, contributing to the company's financial health and strategic planning.
2. Investments: This category includes investments made by the company that are not intended for speculation or short-term realization. These resources are directed toward generating long-term profits or future expansion. Common examples of investments include the acquisition of stocks, commodities, and cryptocurrencies, in which the company invests its resources with the aim of increasing their value and generating returns over time.
3. Fixed Assets: Fixed assets are tangible and fixed assets used in the company's operations. This includes machinery, equipment, furniture, fixtures, and other items that must be recorded on the balance sheet. Additionally, real estate, land, and vehicles are also considered fixed assets.
4. Intangible Assets: Intangible non-current assets refer to a company's rights that lack physical materiality. Although not tangible, these assets have economic value and contribute to increasing the business's competitive advantages. Common examples of intangible assets include patents, software, and brand equity.

By understanding and managing the different types of non-current assets, a company can make more informed strategic decisions and optimize its long-term resource utilization.

What is the difference between current and non-current assets?

Now, see a complete table with the differences between current and non-current assets so you can have a better understanding of each term:

Is it a current or non-current asset?

Now, here's a reference table of various items so you know whether they are current or non-current assets:

Frequently asked questions

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