A short term asset is an asset that is to be sold, converted to cash, or liquidated to pay for liabilities within one year. In the rare cases where the operating cycle of a business is longer than one year (such as in the lumber industry), the applicable period is the operating cycle of the business, rather than one year. An operating cycle is the time period from when materials are acquired for production or resale to the point when cash is received from customers in payment for those materials or the products from which they are derived.
All of the following are typically considered to be short term assets:
- Marketable securities
- Trade accounts receivable
- Employee accounts receivable
- Prepaid expenses (such as prepaid rent or prepaid insurance)
- Inventory of all types (raw materials, work-in-process, and finished goods)
If it is anticipated that any prepaid expenses will not be charged to expense within one year, then they must instead be classified as long-term assets. Later, when it is expected that they will be charged to expense within one year, they are reclassified at that time as short term assets.
A short term asset is the same as a current asset.