Change In Other Current Assets
A cash flow adjustment for the net change in a company's miscellaneous short-term assets, such as prepaid expenses and various non-trade receivables.
âOther current assetsâ is a catch-all category on a companyâs balance sheet for small or unusual short-term assets that donât fit under the main headings like cash, accounts receivable, or inventory. The âchange in other current assetsâ on the cash flow statement reflects how the total of these miscellaneous assets moved from one period to the next. This line item is a key adjustment in the operating activities section that captures cash tied up in (or freed up from) these minor asset items.
What's Included in Other Current Assets?
This category aggregates various short-term assets that are expected to be converted to cash within a year but are not significant enough to be listed individually. Common examples include:
- Prepaid Expenses: Payments made in advance for goods or services to be received in the future, such as prepaid rent, insurance, or subscriptions.
- Deferred Tax Assets: The potential future reduction in income taxes, arising from temporary differences between tax accounting and financial accounting.
- Other Receivables: Amounts due to the company outside of its primary trade receivables, such as interest receivable, tax refunds, or rent receivable.
- Advances and Deposits: Small cash advances to employees or suppliers, or security deposits paid to vendors.
The Impact on Cash Flow
The impact on cash flow follows the standard logic for assets. An increase in an asset represents a use of cash, while a decrease represents a source of cash. This is because acquiring an asset (even a prepaid one) requires a cash payment.
The Core Rule
Where It Appears and Why It Matters
On the statement of cash flows (using the indirect method), âChange in other current assetsâ appears under Operating Activities. It's one of the working capital adjustments used to reconcile net income to net cash from operations. A typical presentation looks like this:
- Net Income
- Plus: Depreciation & Amortization
- Change in Accounts Receivable
- Change in Inventories
- Change in Other Current Assets
- Change in Accounts Payable
- ...
This line is reported separately to capture timing differences between accrual accounting and cash transactions that don't fit into the main categories. While often small, a large change can signal unusual activity, such as a major prepayment. Significant shifts are typically explained in the financial statement footnotes.
Calculation and a Real-World Example
The change is calculated as the difference between the beginning and ending balances of the 'Other Current Assets' account. To reflect the cash impact correctly on the statement, the formula is often presented as:
Calculation Example
Real-World Example: Laugh Radio Inc.
Key Takeaways
This is a catch-all line item for miscellaneous short-term assets like prepaid expenses and non-trade receivables.
It is presented in the Operating Activities section of the cash flow statement to adjust net income for non-cash changes in working capital.
An increase in other current assets is a use of cash (outflow) and is represented by a negative number.
A decrease in other current assets is a source of cash (inflow) and is represented by a positive number.
The line item helps capture timing differences and, if the change is significant, can signal unusual business activities that warrant a closer look.
Change In Other Current Assets
A cash flow adjustment for the net change in a company's miscellaneous short-term assets, such as prepaid expenses and various non-trade receivables.
âOther current assetsâ is a catch-all category on a companyâs balance sheet for small or unusual short-term assets that donât fit under the main headings like cash, accounts receivable, or inventory. The âchange in other current assetsâ on the cash flow statement reflects how the total of these miscellaneous assets moved from one period to the next. This line item is a key adjustment in the operating activities section that captures cash tied up in (or freed up from) these minor asset items.
Table of Contents
What's Included in Other Current Assets?
This category aggregates various short-term assets that are expected to be converted to cash within a year but are not significant enough to be listed individually. Common examples include:
- Prepaid Expenses: Payments made in advance for goods or services to be received in the future, such as prepaid rent, insurance, or subscriptions.
- Deferred Tax Assets: The potential future reduction in income taxes, arising from temporary differences between tax accounting and financial accounting.
- Other Receivables: Amounts due to the company outside of its primary trade receivables, such as interest receivable, tax refunds, or rent receivable.
- Advances and Deposits: Small cash advances to employees or suppliers, or security deposits paid to vendors.
The Impact on Cash Flow
The impact on cash flow follows the standard logic for assets. An increase in an asset represents a use of cash, while a decrease represents a source of cash. This is because acquiring an asset (even a prepaid one) requires a cash payment.
The Core Rule
Where It Appears and Why It Matters
On the statement of cash flows (using the indirect method), âChange in other current assetsâ appears under Operating Activities. It's one of the working capital adjustments used to reconcile net income to net cash from operations. A typical presentation looks like this:
- Net Income
- Plus: Depreciation & Amortization
- Change in Accounts Receivable
- Change in Inventories
- Change in Other Current Assets
- Change in Accounts Payable
- ...
This line is reported separately to capture timing differences between accrual accounting and cash transactions that don't fit into the main categories. While often small, a large change can signal unusual activity, such as a major prepayment. Significant shifts are typically explained in the financial statement footnotes.
Calculation and a Real-World Example
The change is calculated as the difference between the beginning and ending balances of the 'Other Current Assets' account. To reflect the cash impact correctly on the statement, the formula is often presented as:
Calculation Example
Real-World Example: Laugh Radio Inc.
Key Takeaways
This is a catch-all line item for miscellaneous short-term assets like prepaid expenses and non-trade receivables.
It is presented in the Operating Activities section of the cash flow statement to adjust net income for non-cash changes in working capital.
An increase in other current assets is a use of cash (outflow) and is represented by a negative number.
A decrease in other current assets is a source of cash (inflow) and is represented by a positive number.
The line item helps capture timing differences and, if the change is significant, can signal unusual business activities that warrant a closer look.
Related Terms
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