A current asset is:
A)the market value of all items currently owned by the firm.
B)an item that the firm expects to own within the next year.
C)the amount of cash on hand the firm currently shows on its balance sheet.
D)cash or an item currently owned by the firm that will convert to cash within the next 12 months.
E)an item currently owned by the firm.

Question

Quizplus · Accepted Answer

A current asset is an item that is currently owned by the firm and is expected to convert to cash within the next 12 months. This includes cash, accounts receivable, inventory, and other assets that can be easily converted to cash. Option A is incorrect because the market value of all items currently owned by the firm may not be related to the concept of current assets. Option B is incorrect because an item that the firm expects to own within the next year is not considered a current asset until it has been acquired. Option C is incorrect because the amount of cash on hand may not include cash equivalents and other easily convertible assets that also constitute current assets. Option E is partially correct but does not specify the time frame of conversion to cash, which is a key characteristic of a current asset.

A Current Asset Is