Final answer:
Current assets, such as cash, cash equivalents, accounts receivable, inventory, and prepaid expenses, are classified as assets that can be converted to cash or consumed within 1 year or the current operating cycle.
Step-by-step explanation:
Cash and other assets that are reasonably expected to be converted to cash or consumed within 1 year or the current operating cycle are classified as current assets. Current assets include cash, cash equivalents, accounts receivable, inventory, and prepaid expenses. These assets are considered highly liquid, meaning they can be easily converted into cash.
For example, if a company has $10,000 in cash, $5,000 in accounts receivable, and $2,000 in inventory, these would all be classified as current assets because they are expected to be converted into cash within a year or the operating cycle of the company. On the other hand, long-term investments or property and equipment would not be classified as current assets because they are not expected to be converted into cash within the short term.