Multiple Choice
Which of the following types of accounting primarily tracks inventory across the organization?
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1. Introduction to Accounting
Types of Accounting
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Which of the following items would most likely NOT be classified as a current asset?
A
Accounts Receivable
B
Equipment
C
Inventory
D
Prepaid Insurance
Verified step by step guidance1
Step 1: Understand the definition of a current asset. Current assets are assets that are expected to be converted into cash, sold, or consumed within one year or within the operating cycle of the business, whichever is longer.
Step 2: Analyze each option provided in the question. Determine whether each item meets the criteria of a current asset based on its liquidity or usage within one year.
Step 3: Evaluate 'Accounts Receivable.' Accounts receivable represents amounts owed to the company by customers for goods or services provided on credit. Since these amounts are typically collected within one year, they are classified as current assets.
Step 4: Evaluate 'Inventory.' Inventory includes goods available for sale or raw materials used in production. These are expected to be sold or used within the operating cycle, making them current assets.
Step 5: Evaluate 'Equipment.' Equipment is a long-term asset used in the operations of the business and is not expected to be sold or converted into cash within one year. Therefore, equipment would NOT be classified as a current asset.
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