How are current assets defined?

Current assets are defined as assets that are expected to be converted into cash or used up within a relatively short period, typically within one year. This definition is key in financial accounting because it helps determine the liquidity position of a company. Current assets include cash, accounts receivable, inventory, and other assets that are anticipated to be liquidated or utilized in the normal operating cycle.

Options mentioning assets that cannot be liquidated for five years or those that lack a clear conversion timeline do not fit within the definition of current assets, as they imply a longer-term investment perspective. Similarly, defining current assets based solely on physical form, such as inventory, is misleading, because current assets can also include intangible assets that fulfill the liquidity criteria. The definition focuses primarily on the time frame for conversion to cash, which is essential for managing operating capital and ensuring financial stability.