alleryStart learning →Which test decides whether an asset counts as a current asset?
AIt was bought during the current year
BIt can be pledged as loan collateral
CIt is expected to last longer than a year
DIt will become cash within the next 12 months
Answer & Solution
Correct answer: D. It will become cash within the next 12 months
1. Current assets are those that can or will be converted to cash within the next 12 months.
2. They matter because they provide the funds used to pay the firm's current bills and show how much money it can quickly raise.
3. Cash, marketable securities, accounts receivable, notes receivable and inventory all qualify.
4. Lasting longer than a year is the test for a fixed asset, not a current one, so that option describes the opposite category.
_Source: OpenStax Introduction to Business (CC BY 4.0), Ch 14 "Using Financial Information and Accounting", section Key Terms_
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