As a business owner, you have various types of assets in your company. One of the vital assets is current assets. The cash, cash equivalents (investments with high liquidity), or anything that you can turn into cash in a year are all your current assets. On the other hand, “other current assets” is a usual group of “current asset” in a general ledger account. It does not include major current assets such as cash, inventory, accounts receivable, prepaid expenses, as well as marketable securities (Also see What You Need to Know About Deferred Asset).
We will not include these major accounts in the category of other current assets since we will present them separately on the balance sheet. This is because they will typically carry material amounts that you should monitor them individually.
You will rarely record some assets, or some of the assets are very immaterial, that you will not create a “major” account separately for them in the category of general current assets. Hence, the line item for other current assets will generally possess a small net balance. If the account develops until it reaches a material proportion, this can indicate that there are one or more assets in the account. In this case, you should reclassify them as “major” current assets and itemise them individually in their accounts. Some instances of current assets include the advances you pay to your suppliers (Also see Procedures in a Supplier Audit) or employees, as well as the cash surrender value of your life insurance policies.
As you categorise these residual accounts as current assets, you need to ensure that you can convert their contents into cash in a year or a trade cycle (Also see Understanding Asset Conversion Cycle).
When you present your balance sheet, you should aggregate accounts which you include in the group of other current assets in a single line item.
If the other current assets line item has a significant ending balance, you may move a portion of the balance into a different line item which you can identify it easily. By doing so, those who read the balance sheet will be able to understand better about the nature of the things you have recorded.
An accounting procedure (Also see Financial Accounting – Basic Principles, Conventions and Assumptions) that focuses on investigating this account can be necessary so that you can know whether there is any item that you should not record it as an asset anymore. If not, they can stay on your balance sheet for a few years until an outside auditor proposes to correct them.
It is normal if you cannot understand fully the accounting facts presented above. However, having your books well-organised can be significant to your company so that you can keep a tight grip on your finances. Thus, you should engage an accounting firm in Johor Bahru to help you with the accounting-related tasks.