Hands down, assets are crucial for all businesses as they foster entrepreneurs to grow their business value, make profits, and even keep the business running. As a business owner, if you can create an appropriate list of your assets, you can evaluate the financial status of your business effortlessly and precisely.
In financial accounting, assets fall under two categories: current and noncurrent. Companies maintain both current and noncurrent assets on their balance sheet to determine the company’s total assets. Generally, current assets are short-term assets essential for a company’s immediate needs, while noncurrent assets are for long-term benefits.
This blog will shed light on current assets, current assets examples, and whether inventory is a current asset.
Current and noncurrent assets
Current assets are assets that you can convert into cash within one year. These assets are often the company’s resources to run its daily business operations and meet current expenditures. People often use current assets to measure the short-term financial status of the company.
Current assets include the following items:
- Cash and cash equivalents,
- Marketable securities,
- Accounts receivable,
- Inventory, and
- Prepaid expenses.
On the other hand, noncurrent assets are long-term investments of the company that are useful in the long run. We cannot convert them into cash immediately.
Noncurrent assets include the following items:
- Land,
- Equipment,
- Trademarks, and
- Long-term investments and goodwill.
What exactly is inventory? Is it a current asset?
Inventories have always been recorded as current assets for one apparent reason—businesses can sell them within a year. However, not all inventory is the same; it falls under three categories.
1. Raw materials:
Raw materials can be any commodities like steel, oil, wire, gasoline, etc., that a business might need to produce goods. For instance, a jewelry business may need beads and wires, while a bakery would need flour and eggs.
2. Work in progress:
Work in progress refers to all products that are not yet done and are not ready for sale. It can be anything from a half-done embroidered shawl to unbaked pottery.
3. Finished Goods:
Finished goods are products that are ready for sale. It could be a packet of biscuits or a laptop.
How to prevent inventory from turning obsolete or losing value?
Since inventory can be used or sold off for cash within that year, it is always listed as a current asset on the balance sheet. However, excess and unsold inventory can lose its market value eventually if the stock has a limited shelf life. For instance, food products that come with an expiration date or outdated technology. Such inventories can bring you loss or hurt your profits if you don’t sell them on time.
Investing in feature-rich inventory management software like DEAR can help you avoid obsolete inventory. DEAR streamlines your stocktaking, giving you precise details and a clear picture of the stock you hold. Besides, you can also assign a batch number or serial number to the products at the time of receipt and dispatch the old stock first. Thus, your inventory will not lose value as you will sell them on time, driving you with maximum profits. Additionally, with DEAR’s inventory write-off feature, you can quickly identify the inventory that lost its value and intervene early to make the most out of that product.
How can DEAR help you with optimal inventory management and drive maximum sales?
DEAR is a cloud-based inventory management system with many sophisticated features that any modern business would need. With DEAR, you can maintain optimal inventory levels by automating the stock replenishment process. You can automate the software to send Purchase Orders (POs) to the supplier when the inventory levels become zero or fall behind the threshold. Thus, you can avoid buying excess inventory or prevent stock outs as DEAR maintains optimal inventory levels. Moreover, DEAR provides real-time reports on sales, purchases, and order histories, enabling you to gain accurate market insights. Thus, you can stock the right products in the right amounts at the right places, meeting your customer’s expectations. Get in touch with the DEAR team to know how DEAR can benefit your business.