fbpx

What are Operating Current Assets?

Operating Current Assets

Share This...

Operating Current Assets

Operating current assets are a subset of a company’s total current assets that are directly related to the company’s core business operations. These are the assets that are involved in the day-to-day activities of the business and are expected to be used up or converted into cash within one year or one operating cycle, whichever is longer.

Operating current assets typically include:

Operating current assets exclude current assets that are not directly related to the operations of the business, such as marketable securities, short-term investments, and cash not required for operations.

By focusing on operating current assets, a company can better manage its working capital and improve its liquidity and operational efficiency. For instance, reducing the amount of inventory or accounts receivable can free up cash for other uses, while increasing prepaid expenses might be a sign that the company is effectively using its resources to take advantage of discounts or avoid future price increases.

Example of Operating Current Assets

Let’s take a hypothetical example of a company, say, “ManufactureCo,” and look at its balance sheet to determine its operating current assets.

Suppose the company’s current assets include:

  • Cash: $50,000
  • Marketable Securities: $20,000
  • Accounts Receivable: $100,000
  • Inventory: $150,000
  • Prepaid Expenses: $30,000

Although cash and marketable securities are current assets, they are not directly tied to the operations of the business, so they are not considered operating current assets.

On the other hand, accounts receivable, inventory, and prepaid expenses are all tied to the company’s operations, so they are operating current assets.

Adding these operating current assets together, we get:

Operating Current Assets = Accounts Receivable + Inventory + Prepaid Expenses
Operating Current Assets = $100,000 + $150,000 + $30,000 = $280,000

So, ManufactureCo’s operating current assets total $280,000.

This number represents the resources tied up in the company’s day-to-day operations, and these assets are expected to be turned into cash within one year or one operating cycle. Understanding this figure can help the company manage its working capital more effectively and improve its operational efficiency.

Other Posts You'll Like...

Want to Pass as Fast as Possible?

(and avoid failing sections?)

Watch one of our free "Study Hacks" trainings for a free walkthrough of the SuperfastCPA study methods that have helped so many candidates pass their sections faster and avoid failing scores...