Current Asset vs. Fixed Asset

Attribute	Current Asset	Fixed Asset
Definition	Assets that are expected to be converted into cash or used up within one year	Assets that are held for long-term use and are not expected to be converted into cash within one year
Examples	Cash, accounts receivable, inventory	Land, buildings, machinery
Depreciation	Not applicable	Depreciation is recorded to allocate the cost of the asset over its useful life
Valuation	Generally valued at cost or market value, whichever is lower	Valued at historical cost less accumulated depreciation

Definition

Current assets and fixed assets are two important components of a company's balance sheet. Current assets are assets that are expected to be converted into cash or used up within one year, such as cash, accounts receivable, and inventory. On the other hand, fixed assets are long-term assets that are used in the production of goods or services and are not intended for sale, such as buildings, machinery, and vehicles.

Liquidity

One of the key differences between current assets and fixed assets is their liquidity. Current assets are more liquid than fixed assets because they can be easily converted into cash within a short period of time. This makes current assets more valuable in meeting short-term obligations and covering day-to-day expenses. On the other hand, fixed assets are less liquid as they are not easily converted into cash and may take longer to sell or dispose of.

Value

Current assets are typically valued at their market value or the amount of cash they are expected to generate within one year. This means that the value of current assets can fluctuate based on market conditions and the company's operations. Fixed assets, on the other hand, are valued at their historical cost less accumulated depreciation. This means that the value of fixed assets remains relatively stable over time, unless there are significant changes in the asset's condition or useful life.

Usage

Current assets are used to support the day-to-day operations of a business, such as paying suppliers, employees, and other short-term obligations. These assets are crucial for maintaining the liquidity and financial health of the company. Fixed assets, on the other hand, are used to generate revenue and profits over the long term. These assets are essential for the production of goods or services and are considered as long-term investments in the company's growth and success.

Risk

Current assets are subject to less risk compared to fixed assets. Since current assets can be easily converted into cash, they provide a buffer against financial difficulties and economic downturns. In contrast, fixed assets are more exposed to risk as they are tied up in long-term investments that may be affected by changes in technology, market conditions, or regulatory requirements. This makes fixed assets more vulnerable to depreciation and obsolescence.

Management

Managing current assets and fixed assets requires different strategies and considerations. Current assets need to be closely monitored and managed to ensure that the company has enough liquidity to meet its short-term obligations. This may involve optimizing the company's cash flow, managing inventory levels, and collecting accounts receivable in a timely manner. Fixed assets, on the other hand, require long-term planning and investment to ensure that they remain productive and generate returns for the company over their useful life.