In the accrual basis example, which item is included as a current asset?

In the accrual basis example, which item is included as a current asset?

• A. Pick-up truck
• B. Accounts payable
• C. Checking account cash balance
• D. Quarterly income tax payment due

Answer: (C)

Current assets are resources a business expects to convert to cash or use up within a year (or within the operating cycle), making them highly liquid. The checking account cash balance fits this definition because it represents cash that the business can access and use immediately. The pickup truck, in contrast, is a long-term asset (a fixed asset) used over several years. Accounts payable is a liability, not an asset, since it’s what the business owes. A quarterly income tax payment due is also a liability—money owed to the government—not an asset. So the checking account cash balance is the item that qualifies as a current asset.

Current assets are resources a business expects to convert to cash or use up within a year (or within the operating cycle), making them highly liquid. The checking account cash balance fits this definition because it represents cash that the business can access and use immediately. The pickup truck, in contrast, is a long-term asset (a fixed asset) used over several years. Accounts payable is a liability, not an asset, since it’s what the business owes. A quarterly income tax payment due is also a liability—money owed to the government—not an asset. So the checking account cash balance is the item that qualifies as a current asset.