Definition
Under ASC 210-10-45, current assets are cash and other assets reasonably expected to be realized, sold, or consumed within one year or the normal operating cycle if longer. Current liabilities are obligations expected to be settled using current assets or by creating other current liabilities, generally within the same period. Debt due within a year is current, as is long-term debt that is callable because of a covenant violation, unless an exception in ASC 470-10-45 applies. Short-term obligations can be classified noncurrent only if the entity intends to refinance them on a long-term basis and demonstrates the ability, through post-balance-sheet issuance or a qualifying financing agreement (ASC 470-10-45). Deferred taxes are noncurrent. Some entities, such as real estate and nonprofits, use unclassified balance sheets.
Why it matters in an audit or review
Classification affects liquidity ratios, covenants, and going concern conclusions. Auditors test the current portion of long-term debt and lease liabilities, deferred revenue release, and refinancing evidence.
Example
(Illustrative) A $2.0 million term loan requires $250,000 of principal due within 12 months. Current portion $250,000; noncurrent $1,750,000.
Common mistakes
- Omitting the current portion of leases.
- Counting an intended refinancing with no agreement as noncurrent.
Sources
- FASB ASC 210-10-45, Balance Sheet, Current Assets and Current Liabilities
- FASB ASC 470-10-45, Debt, Classification of short-term obligations expected to be refinanced and callable debt
- FASB ASC 740-10-45 (as amended by ASU 2015-17), Income Taxes, balance sheet classification of deferred taxes
Definitions paraphrase AICPA and FASB guidance; read the standard itself before relying on a requirement. Example figures are illustrative. This page is guidance, not professional advice. Report an error