Which statement best defines current assets?

Which statement best defines current assets?

• A. Items that will be used up in one year
• B. Assets that can be converted to cash quickly
• C. Long-term investments
• D. Intangible assets

Answer: (B)

Current assets are resources a business expects to convert to cash or use up within one year (or the operating cycle). This focus on liquidity shows how quickly the company can meet short-term needs. Examples include cash, accounts receivable, inventory, and short-term investments. The statement that describes current assets as assets that can be converted to cash quickly matches this liquidity idea, which is why it’s the best fit. The other ideas aren’t accurate definitions: long-term investments and intangible assets are usually not turned into cash within a year, and the phrase “used up in one year” is too narrow to capture the full scope of current assets, which includes items that are consumed or converted within that period.

Current assets are resources a business expects to convert to cash or use up within one year (or the operating cycle). This focus on liquidity shows how quickly the company can meet short-term needs. Examples include cash, accounts receivable, inventory, and short-term investments. The statement that describes current assets as assets that can be converted to cash quickly matches this liquidity idea, which is why it’s the best fit. The other ideas aren’t accurate definitions: long-term investments and intangible assets are usually not turned into cash within a year, and the phrase “used up in one year” is too narrow to capture the full scope of current assets, which includes items that are consumed or converted within that period.