Question

What order are current assets listed on the balance sheet and why is that important for us to understand?

Answer 1

The current assets are listed in decreasing order of liquidity. The Current assets section on the Balance sheet begins with Cash and equivalents which is the most liquid. Thereafter current assets such as receivables and income tax receivables or prepaid expenses are listed. These are short term assets and are lesser liquid.

This is important for us to understand because it helps us to assess the liquidity of the business. Higher current assets listed initially implies greater liquidity of the business. For example, if the company has high amounts of cash and marketable securities listed, it means that the company has high liquidity. This helps us understand the risk of default that the company faces with regards to meeting the current liabilities.