"... 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].
 

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)

Normal operating cycle: length of time it takes to convert cash into inventory, to sell the inventory and collect the receivable back into cash.
 
 

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.