Current Assets are defined as items that a company holds as resources and which can be converted into cash within a year or its normal operating cycle, whichever is longer. Examples of current assets include cash, accounts receivable, inventory, prepaid expenses, and investments in short-term debt instruments.
Current Liabilities are the obligations of a company to make payments within one year. These include payables such as accounts payable, taxes payable, wages payable, etc. They also typically include interest on short-term borrowings.
In short, current assets represent a company’s resources that it can use to pay off its current liabilities. By understanding the balance between these two elements, businesses are able to assess their ability to continue operations and manage financial risk effectively.