Question

Current assets are those assets that can be converted into cash within:

A. One year and never longer.
B. One year or the operating cycle, whichever is longer.
C. One year or the operating cycle, whichever is shorter.
D. Management's discretion.

Answer 1

Current assets are defined as assets that can be converted into cash within one year or the operating cycle, whichever is longer, emphasizing the importance of liquidity for the ease of converting assets into cash.

Step-by-step explanation:

When discussing current assets, these are assets that can be converted into cash within a specific timeframe. The correct answer to the question is B. One year or the operating cycle, whichever is longer. Current assets include assets that are expected to be liquidated within one fiscal year or the company's operating cycle, whichever period is longer.

This is because the operating cycle can extend beyond a year for certain businesses, particularly in industries where longer periods are required to convert inventory into receivables and then to cash. In this context, liquidity is crucial as it refers to the ease and quickness with which an asset can be turned into cash, making it available for use in buying goods or services or fulfilling obligations.

Answer 2

B. One year or the operating cycle, whichever is longer.

Step-by-step explanation:

Current Assets are assets that can be converted into cash within a year or an operating cycle whichever is longer.

Current Assets are presented first on a balance sheet and arranged in order of liquidity.

Examples of current assets are cash ,

cash equivalents , short-term investments, accounts receivable and stock inventory.

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