Other Current AssetsDefined along with Formula & How to Calculate
Other current assets (OCA) are assets that a company owns or uses to generate income that is not common or significant and is expected to be consumed or converted into cash within one year.
This account is included on the company’s balance sheet and is part of its total assets.
Other Current Assets Explained
When assets are listed on the balance sheet, they are classified as non-current assets or current assets.
Non-current assets are also called long-term assets, and companies expect to hold these assets for more than one year.
These assets include items such as intangible fixed assets, goodwill, or tangible fixed assets.
Intangible assets consist of items such as trademarks, patents, and copyrights, whereas tangible fixed assets include things such as equipment, land, vehicles, or buildings.
In contrast, current assets are assets that a company expects to consume, use, or sell within a year.
These assets are considered when a company’s ability to pay its short-term liabilities is being analyzed.
Current assets are items such as cash and cash equivalents, inventory, marketable securities, prepaid expenses, and accounts receivable, among others.
Current assets that do not fit into one of these categories and are uncommon are placed into the other common assets category on the balance sheet.
These assets are insignificant or rarely recorded, so the net balance in the other assets account is generally very small.
Formula
The formula for other current assets consists of deducting the more significant categories of current assets listed under current assets from total current assets.
These would include current assets, such as accounts receivable, prepaid expenses, inventory, and marketable securities.
The formula for other current assets is:
Other Current Asset (OBA) = Total Current Assets – Cash and Cash Equivalents – Marketable Securities – Accounts Receivables – Inventory – Prepaid Expenses
Other Current Assets Example
Here is an example showing how to calculate other current assets.
Example
As an example, suppose Company ABC published its annual report.
Listed below are the current assets from the company’s balance sheet.
Cash & Cash Equivalents – $75,000
Marketable Securities – $25,000
Accounts Receivable – $125,000
Inventory – $100,000
Prepaid Expenses – $50,000
Total Current Assets – $400,000
OBA can be calculated by using the formula:
Other Current Asset (OBA) = Total Current Assets – Cash and Cash Equivalents – Marketable Securities – Accounts Receivables – Inventory – Prepaid Expenses
Other Current Asset = $400,000 – $75,000 – $25,000 – $125,000 – $100,000 – $50,000
OBA = $25,000
This means by using the information on the balance sheet of Company ABC; the other current assets are calculated to be $25,000.
Advantages & Disadvantages of OBA
OBA Advantages
- Having all of a company’s uncommon and insignificant short-term assets placed in a single category can make accounting for the assets easier.
Disadvantages
- Sometimes, the other current assets section results in a lack of clarity due to the fact that some companies do not provide any details as to what assets are included in their other current assets.
- All assets in other current assets should have been owned by the company for no more than one year or one business cycle. If the asset has been in OCA for longer than a year, it should be reclassified as a non-current asset. Yet, some companies mistakenly leave assets in this category for longer periods. This is a problem as it results in an increase in the working capital requirement.
Other Considerations
- When it is necessary to discuss other current assets, the information is given as a part of the footnotes in the financial statements. There are times when it might be necessary to explain certain situations, such as a large change in other current assets from a previous business cycle.
- Assets classified as OCA are intended to be disposed of or consumed within a year. If they are kept beyond this point, they should be classified differently. Therefore, the value of other current assets can change considerably between years.
- Companies should look at how significant other current assets are in order to ensure they are not distorting the company’s liquidity. If an item in OCA becomes significant, it should be included in one of the major current asset accounts. This will allow users of the balance sheet to get a better understanding of the company’s current assets.
Final Thoughts
Although other current assets are considered insignificant and thus will not affect the financial position of a company, they should still be considered because they can have an effect on some liquidity ratios if they are not properly accounted for.
Key Takeaways
- Other current assets consist of short-term assets that are not significant enough to be listed individually.
- The assets included in other current assets are insignificant or uncommon. Therefore, the balance in this account is generally small.
- These assets are included on the asset’s side of a company’s balance sheet.
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Cornell Law School "17 CFR § 210.5-02 - Balance sheets." Page 1 . August 23, 2022
Texas A&M University "Balance Sheet – A Financial Management Tool" Page 1 - 11. August 23, 2022