Future Business Leaders of America (FBLA) Agribusiness Practice Test

What are current assets?

1. Assets that cannot be liquidated within an accounting period

2. Cash or items that will turn into cash within the accounting period

3. Property and equipment owned by the firm

4. Long-term investments in stocks and bonds

The correct answer is: Cash or items that will turn into cash within the accounting period

Current assets are defined as cash or items that can be quickly converted to cash within an accounting period, typically within one year. This includes cash, accounts receivable, inventory, and other liquid assets. Understanding current assets is crucial for assessing a company's liquidity, which indicates its ability to meet short-term obligations. The rationale for identifying cash or items convertible to cash as current assets is that they provide a clear picture of the resources available for immediate use in the operational cycle of the business—enabling companies to pay bills, purchase inventory, or invest in opportunities that arise unexpectedly. The other choices refer to other types of assets. The option regarding assets that cannot be liquidated within an accounting period describes long-term assets, which are essential for long-term planning and stability but do not provide immediate liquidity. The mention of property and equipment ties to fixed assets, crucial for the overall valuation of a firm but not for immediate cash flow. Finally, long-term investments in stocks and bonds represent financial instruments that would not typically be categorized as current assets, as these are not intended to be liquidated within the accounting period. Thus, identifying current assets correctly as cash or items turning to cash within the accounting period emphasizes their role in maintaining a company's financial health and