Short-term financial assets

What it means

Short-term financial assets are cash in hand and at bank, stamps and vouchers, and securities held for trading or maturing within one year. They are the most liquid part of a company's assets, available for payments immediately or very quickly.

In Slovak accounting they are recorded in account class 2. This covers the cash desk, stamps and vouchers, bank accounts, short-term securities and holdings, and cash in transit. In the balance sheet they appear within current assets as financial accounts.

What distinguishes them from long-term financial assets is the intention and holding period. Shares bought for quick resale are short-term financial assets, while a stake in a subsidiary or a bond held to maturity several years away is a long-term financial asset.

How it works in practice

Short-term financial assets are the basis of the cash ratio, which compares cash and cash equivalents with current liabilities. Banks and suppliers watch it because it shows whether the company can pay without waiting for customers to settle their invoices.

Idle cash is worth putting to work, for example in a term deposit, a savings account or short-term government securities. When choosing, weigh the return against access to the money so that an unexpected expense does not trigger a penalty for early withdrawal.

At year end short-term financial assets are verified: the cash desk by a physical count, bank accounts by comparison with statements and securities by a depository statement. Foreign currency balances are translated at the ECB rate at the reporting date and FX differences are booked.

What to watch out for

An overdrawn bank account or overdraft is not a negative short-term financial asset but a short-term bank loan. It must be shown as a liability in the balance sheet, not netted against balances on other accounts, otherwise both liquidity and indebtedness are misstated.

Securities held for trading are measured at fair value at the reporting date, with changes taken to profit or loss. When markets fall, the company reports a loss even without selling, which can affect the ratios banks monitor under loan agreements.