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Explanation of Total Current Assets
Also called Current Assets and listed on the Balance Sheet, the Total Current Assets represent the cash or assets that are expected to be converted into cash – also called near-cash assets. These are assets that are typically consumed and replaced during normal business activities of the company.
Usually, assets to be converted are expected to do so within one year, or one cycle of operations (whichever is the longer of the two). The cycle of operations is the total time required to create, sell, and collect cash on the products a company might produce. Total Current Assets usually make up several line items, such as Cash and Cash Equivalents, Marketable Securities, Accounts Receivable, Inventories, and Prepaid Expenses.
Importance of Total Current Assets
Total Current Assets as a whole are important, but each of the line items that make up the Total Current Assets are also important. Some performance ratios that require the Total Current Assets are the Current Ratio and Quick Ratio.