Question

How do you know that an asset should be classified as a “current asset”? A) the...

How do you know that an asset should be classified as a “current asset”?

A) the last asset purchased by a business.

B) an asset which is currently being used to produce a product or service.

C) usually found as a separate classification in the income statement.

D) expected to be converted to cash or used in the business within a relatively short period of time

Business   Accounting   
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Answer #1

An asset is classified as a “current asset” when it is expected to be converted to cash or used in the business within a relatively short period of time.

Correct option is (D)

Short period of time generally refers to a period of 12 months. All assets convertible into cash within a period of 12 months are classified as current assets.

Assets such as cash balance, Accounts receivables, Inventory and prepaid expenses are considered as current assets.

On the other side, if assets are held in the business for using them a longer period of time, these are classified as long term assets.

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