NCEA Level 1 Accounting Practice Exam 2025 – Your All-in-One Resource to Exam Success!

A current asset is defined as an asset that can be converted into cash within a year or during the normal operating cycle of a business. This classification is crucial for assessing a company’s short-term liquidity and financial health.

The essence of current assets includes items like cash, accounts receivable, and inventory. These resources are expected to either be sold or used within a year, making them essential for covering short-term obligations and expenses.

Other options represent different categories of assets that do not fit the definition of current assets. Long-term investments such as real estate, for example, are held for longer durations and provide benefits over multiple years. Fixed assets, which usually consist of property, plant, and equipment, are not easily liquidated and are also intended for long-term use. Intangible assets, like patents, represent non-physical assets that may have value but are not expected to convert to cash within the short term.

Thus, the identification of the current asset rests solidly on the aspect of short-term liquidity, which is accurately captured in the correct choice.