Current Assets are the assets a company expects to convert and collect in cash within the short term (within a year, but often sooner). These include cash itself, accounts receivable (money owed by customers), inventory (raw material, work in process, and goods ready for sale), and other short-term assets like prepaid expenses. From a cash flow perspective, Current Assets are the sources of future cash inflows. For instance, accounts receivable will turn into cash once customers pay their invoices, and inventory will generate cash when sold. Efficient management of Current Assets ensures a company can generate sufficient cash flow to pay off its short-term debts and reinvest in the business.

Current Liabilities are obligations a company must settle or pay in cash in the short term. These include accounts payable (money owed to suppliers), accrued expenses (costs that have been incurred but not yet paid), deferred revenue, short-term loans, and other similar short-term debts. In the context of Net Working Capital (NWC), current liabilities are important because they represent near-term cash outflows the company will need to manage. The more Current Liabilities a company has, the greater the demand on its available resources, which can affect its liquidity and ability to operate smoothly. From a cash flow perspective, Current Liabilities are the immediate drains on the company’s cash. Effective management of Current Liabilities is crucial to ensure that the company maintains enough liquidity to cover these obligations without straining its cash flow.