What are current assets?

• A. Equipment used in manufacturing.
• B. Cash and liquid assets that can be converted to cash within a 12 month period.
• C. Long-term investments.
• D. Accounts payable.

Answer: (B)

Current assets are the resources a business expects to convert to cash or use up within one year (or within the operating cycle, if it’s longer). They provide liquidity for day-to-day operations. The best description here is cash and other liquid assets that can be turned into cash within twelve months, which includes cash itself, marketable securities, accounts receivable, and inventory. These items are typically shown as current assets on the balance sheet because of their near-term convertibility.

Equipment used in manufacturing is a fixed asset (non-current) tied to long-term use. Long-term investments are also non-current because they’re not expected to be sold or converted to cash within a year. Accounts payable represents amounts owed to others and is a liability, not an asset.