What is considered a current asset?

A current asset is defined as an asset that is expected to be converted into cash, sold, or consumed within one year or within the operating cycle of the business, whichever is longer. Items that can be utilized or liquidated in the near term, such as inventory or accounts receivable, fall into this category.

Choosing items that are to be used relatively soon directly aligns with the classification of current assets. These items are typically kept on hand for production, resale, or other short-term business operations, and they contribute to the liquidity of a company by providing resources that can be quickly accessed or utilized.

In contrast, land held for investment is classified as a long-term asset because it is not expected to be sold or used in the short-term. Equipment used for manufacturing is also considered a long-term asset, as it is for ongoing operations and not intended for immediate sale. Similarly, patents and trademarks are intangible assets that provide longer-term value and also do not fit the criteria for current assets since they are not meant to be liquidated or used in the short term in the same manner as typical current assets.