Current Assets: Formula & Examples for 2025

Current assets are liquid assets—cash, receivables, and inventory—that can be converted into cash within a year. Businesses draw on current assets to buffer unexpected cash flow volatility and keep the lights on.

Imagine it’s Friday afternoon. A big customer’s payment is late, and you still have Monday payroll. If your current asset cushion is big enough, you draw on cash already in the bank. If it isn’t, you scramble, hoping you can secure enough credit to cover your expenses in time. 

That’s why managing current assets is important for any small business accounting practice. Knowing how to analyze and optimize them is essential for healthy cash flow and sustainable growth.

What are current assets? 

Current assets such as cash, inventory, and short-term receivables are the working capital that keeps a business running day to day. 

They are called current assets because they can be converted into cash within 12 months. Businesses rely on these liquid resources to cover payroll, restock inventory, or capitalize on supplier discounts without incurring expensive debt. 

In contrast, non-current assets are resources with a longer life span, usually more than a year. They cannot be easily converted into cash within a short timeframe. Non-current assets include:

• Property
• Manufacturing equipment
• Long-term investments
• Patents and trademarks

It’s essential to understand the distinction between types of assets, because it affects how to present them on a balance sheet. If you misjudge your asset mix, you could miss opportunities requiring liquidity or find yourself unable to pivot to avoid a risk.

📚 Read: Balance Sheet vs. Income Statement: What’s the Difference?

7 types of current assets

While cash is the most obvious current asset, it’s not the only one. Here are the seven main types of current assets, listed in order of the time and effort it takes to convert them to spendable cash—in other words, from most to least liquid:

1. Cash and cash equivalents
2. Marketable securities
3. Accounts receivable
4. Inventory
5. Operating supplies
6. Prepaid expenses
7. Other liquid assets

1. Cash and cash equivalents

Cash is simple: It’s the money you have in the bank. Cash equivalent assets, meanwhile, are things that can easily be converted into cash, like treasury bills maturing in less than 90 days, short-term investments, and foreign currency.

2. Marketable securities

If an asset trades on a public market and settles in less than three days, it’s a marketable security. These can include:

• Treasury bills
• Short-term certificates of deposit (CDs)
• Common or preferred stock investments in large-cap companies
• Institutional money market funds 

Per generally accepted accounting principles, or GAAP, crypto currencies such as Bitcoin are not marketable securities. Instead, they’re classified as intangible assets.

3. Accounts receivable

Your business’s outstanding debts or IOUs are considered accounts receivable (AR). It’s the money owed for goods and services you’ve already delivered, usually due within 30 to 60 days.

⚠️ If you operate in an industry with high returns, like fashion or electronics, AR can overstate your liquidity. Create an allowance for returns so you don’t plan payroll or inventory purchases on cash that might be refunded. 

4. Inventory

Inventory includes finished goods, works in progress, and raw materials that you plan to sell within the next 12 months. 

Pre-order stock (paid but not yet fulfilled) counts as current because it’s convertible to cash upon shipment. Seasonal inventory planning, like winter apparel ordered in July, counts as current if you plan to sell before next July.

However, not all inventory is considered a current asset; any inventory you expect to hold onto for more than a year should be classified as a non-current asset and listed accordingly.

5. Operating supplies

Supplies are tricky because they’re only considered current assets until they’re used, at which point they become an expense. If your company has a stock of unused supplies, list them under current assets on your balance sheet.

6. Prepaid expenses

Prepaid expenses include anything you’ve paid for but expect to benefit from over time. If you’ve paid annual fees for your Shopify plan or an extended insurance policy, you have prepaid expenses. Report these on your company’s income statement over the period the payment covers.

7. Other liquid assets

This is a catchall category covering any other current assets you can easily convert to cash within a year. Use this designation to list items such as promissory notes, tax refunds, or other liquid holdings that don’t fit into the categories above.

Current assets examples from real businesses

Retail and ecommerce example

Sustainable footwear and apparel retailer Allbirds (BIRD) reported total current assets of $130.6 million for its 2024 fiscal year. 

• Cash and cash equivalents: $66.7 million
• Accounts receivable: $6.2 million
• Inventory: $44.1 million
• Prepaid expenses & other current assets: $13.5 million

Service business example

Global consulting firm Accenture (ACN) total current assets for the fiscal year ending August 31, 2024, showed $20.86 billion.

• Cash and cash equivalents: $5 billion
• Short-term investments: $0.005 billion
• Receivables and contract assets: $13.66 billion
• Other current assets: $2.18 billion

How to calculate current assets

Current asset formula

Once you’ve listed your current assets on your balance sheet in the order outlined above, it’s easy to calculate your total current assets—just add them all up. 

Here is the formula.

Current Assets = Cash + Cash Equivalents + Marketable Securities + Accounts Receivable + Inventory + Supplies + Prepaid Expenses + Other Liquid Assets

Take the hypothetical company Twisp Cycling Co., a mid-sized ecommerce bike retailer, for example. Here is what the controller pulls from the year-end balance:

Use your balance sheet’s current assets to calculate liquidity ratios. By showing you the balance of assets to liabilities, liquidity ratios give you a sense of your company’s financial health and help you understand whether it can meet its short-term financial obligations. 

Here are some common types of liquidity ratios.

Current ratio

Your current ratio is the ratio of current assets to current liabilities, which are debts you must pay off within the year. Luckily, this calculation doesn’t require advanced math. The formula for obtaining your current ratio is:

Current Ratio = Current Assets / Current Liabilities

Quick ratio

Your quick ratio helps you understand how well your company can meet its financial obligations within 90 days. Here’s the formula for obtaining your quick ratio:

Quick Ratio = (Cash + Cash Equivalents + Marketable Securities + Accounts Receivable) / (Short-term Debt + Accounts Payable + Accrued Liabilities and Other Debts)

Current asset ratio and optimal levels

The current asset ratio compares all your liquid ownings to everything due within the next 12 months. It answers the question, “If every short-term bill landed today, could we pay them with what we have on hand?” 

Here is the formula:

Current Asset Ratio = Total Current Assets / Total Current Liabilities

This is how you interpret the ratios:

• < 1.0: There is a liquidity gap. You’d need new financing, faster collections, or inventory sell-down to meet near-term obligations.
• 1.1 to 2.0: Healthy cushion. Assets comfortably cover short-term debt without tying up excess cash.
• > 2.0: Cash or inventory may be idle. Consider reinvesting in growth, paying down debt, or returning capital. 

Net working capital

Calculating net working capital gives you a clear view of your company’s liquidity, short-term financial health, and efficiency by showing you how much money you could have right now. It’s a meaningful calculation and an easy one. The formula for net working capital is:

Net Working Capital = Current Assets - Current Liabilities

💡Pair these ratios with a cash flow forecast so you can spot funding gaps months in advance. If you need extra funds, consider applying for a loan through Shopify Capital. 

*Shopify Capital loans must be paid in full within a maximum of 18 months, and two minimum payments apply within the first two six-month periods. The actual duration may be less than 18 months based on sales.

How to increase current assets

Improve accounts receivable collection

Overdue invoices strain your current assets. Invoice the moment goods ship, or within the acceptance window your vendors permit. 

Automate reminder emails to send at the 14- and 30-day marks. Consider offering a 1% to 2% quick-pay discount to shorten your payment collection period (days sales outstanding, or DSO). 

💡 TIP: Tired of creating invoices from scratch? Try Shopify’s free invoice generator. Simply fill in the required information and create an invoice on the spot.

Leverage cash management tools 

With the fed funds rate hovering around 4.3%, park idle balances in a high-yield sweep account or Shopify Balance so every dollar earns interest until you need it. Even a 4% annual yield on a $100,000 cushion adds about $330 a month, which can boost your current-asset ratio without extra work.

Optimize inventory management

Every day stock sits on a shelf is a day of cash you can’t spend elsewhere.

Use Shopify’s inventory reports and the Stocky app to forecast demand, set reorder points, and right-size purchase quantities. Turn on low-stock notifications and automatic purchase-order creation to restock bestsellers just in time, not months in advance. 

Fewer slow movers equals more liquid assets and a stronger current-asset ratio.

Negotiate better payment terms

When suppliers demand net 30 payment but customers routinely pay in 45 days, you become the bank. Push vendors for 45- or 60-day terms so products sell before invoices come due.

If liquidity allows, negotiate “2/10 net 30” discounts and pay early only when the discount beats your cost of capital. Aligning cash inflows and outflows keeps working capital in your account (not the bank’s) and cushions short-term liquidity.