Which statement about Current Assets is true?

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Multiple Choice

Which statement about Current Assets is true?

Current assets are items a company expects to realize in cash or use up within 12 months (or within its operating cycle, if that’s longer). The key example is cash and cash equivalents—money on hand or assets that are readily convertible to known amounts of cash with little risk of change in value. The statement that best fits this idea is that an asset is cash or cash equivalent unless there is a restriction preventing its exchange or use to settle a liability for at least twelve months after the reporting period. If such a restriction exists for at least a year, that cash or cash equivalent would be classified as non-current. In other words, cash and cash equivalents are current assets by default, but long-term restrictions move them out of the current category. The other descriptions don’t align with how current assets are defined. An asset being non-current is the opposite of current. If an asset is held primarily for trading, it could be current if it’s expected to be realized within a year, but that isn’t the universal rule for all current assets. An asset expected to be realized after more than one year is, by definition, non-current.

Current assets are items a company expects to realize in cash or use up within 12 months (or within its operating cycle, if that’s longer). The key example is cash and cash equivalents—money on hand or assets that are readily convertible to known amounts of cash with little risk of change in value.

The statement that best fits this idea is that an asset is cash or cash equivalent unless there is a restriction preventing its exchange or use to settle a liability for at least twelve months after the reporting period. If such a restriction exists for at least a year, that cash or cash equivalent would be classified as non-current. In other words, cash and cash equivalents are current assets by default, but long-term restrictions move them out of the current category.

The other descriptions don’t align with how current assets are defined. An asset being non-current is the opposite of current. If an asset is held primarily for trading, it could be current if it’s expected to be realized within a year, but that isn’t the universal rule for all current assets. An asset expected to be realized after more than one year is, by definition, non-current.

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