Multiple Choice
Which type of accounting is most relevant for a business that raises money by issuing shares of stock?
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1. Introduction to Accounting
Types of Accounting
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The distinction between a current asset and other assets is based on:
A
the asset's expected conversion to cash or use within one year or the operating cycle, whichever is longer
B
the asset's depreciation method
C
the asset's physical form
D
the asset's original purchase price
Verified step by step guidance1
Understand the concept of current assets: Current assets are assets expected to be converted into cash, sold, or consumed within one year or the operating cycle, whichever is longer.
Review the operating cycle: The operating cycle is the time it takes for a company to purchase inventory, sell it, and collect cash from customers. This cycle can vary depending on the industry.
Eliminate irrelevant options: The asset's depreciation method, physical form, and original purchase price are not criteria for distinguishing current assets from other assets.
Focus on the correct criterion: The distinction is based on the expected conversion to cash or use within one year or the operating cycle, whichever is longer.
Apply this understanding to classify assets: When categorizing assets, always consider their expected liquidity or usage timeframe to determine if they are current or non-current.
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