Quick answer
Current assets are the things a business owns that it expects to turn into cash, sell or use up within 12 months or one normal operating cycle. Typical examples are cash at bank, trade debtors, stock and prepayments. On an Australian balance sheet they sit above non-current assets such as property, vehicles and equipment, and lenders use them to judge whether you can meet short-term bills.
Key points
- Cash, trade debtors, stock and prepayments are the usual items
- The test is whether the asset converts to cash within 12 months or one operating cycle
- Cash locked up as security for more than 12 months doesn't count
- Lenders often discount old debtors, slow stock and loans to directors
Open your balance sheet and the first block on the assets side is usually headed “current assets”. It’s the part of what the business owns that is already cash, or on its way to becoming cash soon, and it’s the pool a lender expects you to pay next quarter’s bills from.
What makes an asset “current”?
Australian accounting standards give four tests. Under the AASB’s presentation rules, an asset is current if the business:
- expects to sell, use up or realise it in its normal operating cycle;
- holds it mainly to trade;
- expects to realise it within 12 months of the balance date; or
- holds it as cash or a cash equivalent that isn’t restricted for at least 12 months.
Anything else is non-current. Where a business’s operating cycle isn’t clear, it’s treated as 12 months. Note that the long-standing AASB 101 is being replaced by AASB 18 for for-profit entities’ reporting periods starting on or after 1 January 2027, so your accountant may present your next set of accounts a little differently.
Common current assets in a small business
| Item | What it is | How a lender tends to view it |
|---|---|---|
| Cash at bank | Everyday and savings accounts | Taken at face value, checked against statements |
| Trade debtors | Invoices customers haven’t paid yet | Strong if recent; discounted if over 90 days |
| Stock | Goods held for sale, raw materials, work in progress | Discounted, sometimes heavily, for slow lines |
| Prepayments | Insurance or rent paid in advance | Counted, but can’t pay a supplier |
| Short-term deposits | Funds you can access within 12 months | Counted if not pledged as security |
| Loans to directors or related entities | Money lent out of the business | Usually removed altogether |
That last row trips up a lot of applications. It’s common for a company’s accounts to show a sizeable loan to a director or a family trust, which flatters current assets on paper. Credit assessors know that money is unlikely to come back quickly, so they strip it out, and a business that looked comfortably liquid can suddenly look tight.
Why current assets matter when you borrow
Lenders compare current assets with current liabilities to see whether a business can cover what it owes over the next year. The result is the current ratio, and the dollar difference between the two is working capital.
Current assets can also act as security on their own. Invoice finance lends against trade debtors, and stock finance lends against inventory, so a business without property can still borrow against what’s on its balance sheet.
If your current assets are healthy but tied up in debtors and stock, check what funding could release them.
Worked example: a regional hardware store
A hardware store in Toowoomba shows these current assets at 30 June:
- Cash at bank: $38,000
- Trade debtors (mostly builders on 30-day accounts): $96,000, of which $21,000 is over 90 days
- Stock: $240,000, including about $30,000 of slow-moving lines
- Prepaid insurance: $6,000
- Loan to the owners’ family trust: $45,000
On paper, that’s $425,000 of current assets. A lender assessing liquidity might take out the trust loan entirely, discount the old debtors and slow stock, and land closer to $330,000 of “usable” current assets. Against current liabilities of $250,000, the picture moves from comfortable to adequate. Nothing about the business changed; the lender just looked at what could actually pay bills.
You can run your own figures through our working capital ratio calculator, including a version without stock.
Related terms
- Current liabilities: the debts current assets are measured against.
- Receivables: the money customers owe you.
- Liquidity: how easily assets turn into cash.
- Working capital cycle: how long cash takes to come back around.
Assets on the books, but cash still short?
That gap between what the balance sheet says and what’s in the bank account is exactly where working capital loans and debtor finance earn their keep. If your customers are good for the money but slow to pay, there are ways to bring that cash forward.
Filling in our enquiry takes about a minute and doesn’t trigger a credit check. You won’t be passed along to a string of lenders; one person looks at your numbers and calls you back. Please give us accurate figures for debtors, stock and sales, because that’s what lets us suggest the right facility on the first try.
Frequently asked questions
Is stock a current asset?
Yes. Stock you expect to sell in your normal trading cycle is a current asset even if some of it takes longer than a year to move. Lenders are cautious about it, though, because slow or obsolete stock may sell for far less than its book value.
Is a loan to a director a current asset?
It's often shown as one, but lenders usually remove it when they assess liquidity. A loan to a director or related company is rarely repaid on demand, so most credit assessors treat it as unavailable to pay the business's bills.
Are vehicles and equipment current assets?
No. Vehicles, machinery, fit-outs and property are non-current assets because the business keeps them to use over several years rather than to convert into cash. They matter for security, but not for short-term liquidity.
Is a term deposit a current asset?
It depends on access. A term deposit maturing within 12 months that you can freely use is current. If it's held as security for a bank guarantee or lease for longer than 12 months, it should be shown as non-current.
What's the difference between current assets and working capital?
Current assets are one half of the calculation. Working capital is current assets minus current liabilities, so it tells you how much would be left after paying the short-term bills.