Other current assets are small items on a balance sheet lumped together because they are not important enough to list separately. They are not cash or cash equivalents, and represent a limited source of liquidity for a company. Reports may have footnotes discussing what is included in the other current assets category for the benefit of investors who want more information. Usually the amount is small, and may not have a significant impact on the company’s overall financial situation.
Balance sheets provide information about cash and non-cash assets as well as liabilities. Companies prefer cash or equivalents, like easily marketable securities, because these are highly liquid and can be used to access financing in a hurry. Non-cash assets are less desirable because they may take time to value and sell if they are no longer useful. Other current assets make a small miscellaneous category on the statement.
These assets are expected to be disposed within a year, or to mature into another form. One example can be an insurance policy, which is an asset because it provides benefits to the company, but will be used up after the year of coverage expires. At this point, it is no longer listed in other current assets. Conversely, a company might have notes due which should be paid within a year, but don’t represent a cash equivalent because they are not easily convertible to cash.
Notes under the other current assets can provide more information about what they are, which may be useful to know when reviewing the statement. For example, an asset might turn into a liability after a year; that same insurance policy is declared as an expense once it expires, for example. Likewise, an asset might be highly illiquid, which may be important if the bulk of the company’s assets are tied up in non-cash form. If an emergency occurs, the company might have trouble accessing the necessary funds to address the issue.
Accounting practices used in financial statements must follow broad guidelines issued by regulatory and professional organizations. In addition, accountants within an organization are consistent about how they report information. An asset cannot wander around on financial statements, switching between categories depending on the image the accountant wants to project. Changes in classification or status must be related to a material change in the asset, to ensure that accounting statements between time periods can be accurately and fairly compared.