Which item would typically be classified as a current asset?

Which item would typically be classified as a current asset?

• A. Inventory to be sold
• B. Factory machinery
• C. Long-term loan
• D. Goodwill with indefinite life

Answer: (A)

Current assets are resources expected to be converted into cash or used up within one year or the operating cycle. Inventory fits this definition because it consists of goods held for sale or items in production that are typically turned into cash within the normal business cycle. In contrast, factory machinery is a long-term asset used over many years, a long-term loan is a non-current asset (if it’s a loan receivable due after more than a year), and goodwill with indefinite life is an intangible asset not expected to be liquidated in the near term. So, the item that would be classified as a current asset is inventory intended for sale.

Current assets are resources expected to be converted into cash or used up within one year or the operating cycle. Inventory fits this definition because it consists of goods held for sale or items in production that are typically turned into cash within the normal business cycle. In contrast, factory machinery is a long-term asset used over many years, a long-term loan is a non-current asset (if it’s a loan receivable due after more than a year), and goodwill with indefinite life is an intangible asset not expected to be liquidated in the near term. So, the item that would be classified as a current asset is inventory intended for sale.