"... cash and other assets or resources commonly identified as those which are reasonably expected to be realized in cash or sold or consumed during the normal operating cycle of the business" [or one year whichever is longer].

•  It expects to realise the asset, or intends to sell or consume it, in its normal operating cycle. The normal operating cycle where not clearly identifiable is assumed to be 12 months (IAS 1.68).

• It holds the asset primarily for the purpose of trading

• It expects to realise the asset within 12 months after the reporting period

• The asset is cash or a cash equivalent (as defined in IAS 7) unless the asset is restricted from being exchanged or used to settle a liability for at least 12 months after the reporting period

US GAAP

Current Liabilities-Definition(ARB 43, chapter 3)

"... obligations whose liquidation is reasonably expected to require the use of existing resources properly classifiable as current assets, or the creation of other current liabilities."

Liabilities that require the use of cash, other current assets, creation of another current liability, or the performance of a service.

"The current liability classification, however, is not intended to include a contractual obligation falling due at an early date which is expected to be refunded." ( ARB 43, chapter 3, par. 8)

• It expects to settle the liability in its normal operating cycle. The normal operating cycle where not clearly identifiable is assumed to be 12 months (IAS 1.70).

• It holds the liability primarily for the purpose of trading

• The liability is due to be settled within 12 months after the reporting period

• The entity does not have an unconditional right to defer settlement of the liability for at least 12 months after the reporting period

•  The original term was for a period longer than 12 months, and

• An agreement to refinance, or to reschedule payments, on a long-term basis is completed after the reporting period and before the financial statements are authorised for issue

Net working capital = current assets - current liabilities

Current ratio: current assets divided by current liabilities
 

Purpose of current ratio: indicator of company's short run liquidity

a high current ratio may indicate inefficient management of current assets
a low current ratio may indicate an inability to pay short term debts as they become due.

Determination as to whether the current ratio is too high or too low or satisfactory must be made in light of some standard of comparison.  The standard of comparison may be the industry average, some predetermined or budgeted level, or what the current ratio has been in the past.

Acid test (quick ratio): quick assets divided by current liabilities
quick assets = current assets - inventory -prepaid expenses

acid test ratio is a more conservative test of  a company's short-run debt paying ability.
only cash and current assets "one step" away from cash are included in the numerator.