Definition
Floating Assets, more commonly referred to as Current Assets, are assets that a company owns and expects to convert to cash or consume within a business cycle, usually within one year. These assets are critical for managing day-to-day operations and maintaining the company’s liquidity. Examples include cash, accounts receivable, inventory, and marketable securities.
Examples
- Cash and Cash Equivalents: Money in hand, bank account balances, and short-term investments that can easily be converted to cash.
- Accounts Receivable: Money owed to the company by customers for goods or services sold on credit.
- Inventory: Raw materials, work-in-progress, and finished goods that are ready for sale.
- Marketable Securities: Financial instruments that can be easily sold, such as treasury bills and stocks.
Frequently Asked Questions
What is the difference between floating assets and fixed assets?
Floating Assets are short-term and convertible to cash within a year, like inventory and accounts receivable. Fixed Assets or Non-Current Assets are long-term assets such as buildings, machinery, and equipment that are not expected to be converted to cash in the short term.
How do floating assets impact a company’s liquidity?
Floating Assets are crucial for a company’s liquidity as they ensure the availability of cash to meet short-term obligations and operational needs.
What are common examples of floating assets?
Common examples include cash, accounts receivable, inventory, and marketable securities.
Are intangible assets considered floating assets?
No, intangible assets like patents and trademarks are not considered floating assets. They are categorized under non-current assets.
How are floating assets reported on the balance sheet?
Floating Assets are reported under the Current Assets section on the balance sheet and are listed in the order of their liquidity, with cash being the most liquid.
Related Terms
1. Fixed Assets: Assets that are long-term and used in the operations of a business, such as land, buildings, and machinery. They are not quickly converted to cash.
2. Working Capital: The difference between a company’s current assets and current liabilities. It is a measure of a company’s short-term liquidity and operational efficiency.
3. Quick Ratio: Also known as the acid-test ratio, it assesses a company’s ability to meet short-term obligations with its most liquid assets, excluding inventory.
4. Inventory Turnover: A ratio showing how many times a company’s inventory is sold and replaced over a period, indicating efficiency in managing inventory.
5. Days Sales Outstanding (DSO): A measure of the average number of days that a company takes to collect payment after a sale has been made.
Online References
- Investopedia: Types of Assets
- Accounting Coach: Current Assets
- Corporate Finance Institute: What Are Current Assets?
Suggested Books for Further Studies
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“Intermediate Accounting” by Donald E. Kieso, Jerry J. Weygandt, and Terry D. Warfield A comprehensive guide covering various accounting concepts including current and fixed assets.
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“Financial Accounting” by Walter T. Harrison Jr. and Charles T. Horngren An extensive book providing insights into financial statements, including how to record and manage assets.
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“Accounting Made Simple: Accounting Explained in 100 Pages or Less” by Mike Piper A user-friendly book that simplifies accounting concepts, including the management of assets.
Accounting Basics: “Floating Assets” Fundamentals Quiz
Thank you for exploring “Floating Assets”. For further understanding, dive into the suggested books and resources to expand your knowledge.
