Accounts receivable are typically classified as current assets because they are expected to be converted to cash within what time period?

• A. Within two years regardless of the operating cycle
• B. Within one year or the operating cycle, whichever is longer
• C. Only after they have been sold or factored to a third party
• D. Only when they are secured by collateral and collectible beyond one year

Answer: (B)

Verified step by step guidance

1. Understand the definition of current assets: Current assets are assets expected to be converted into cash, sold, or consumed within the company's operating cycle or one year, whichever is longer.
2. Recognize that accounts receivable represent amounts owed to the company by customers and are usually collected in cash.
3. Identify the relevant time period for classifying accounts receivable as current assets, which depends on the operating cycle or one year, whichever is longer.
4. Recall that the operating cycle is the time it takes for a company to purchase inventory, sell it, and collect cash from customers.
5. Conclude that accounts receivable are classified as current assets because they are expected to be converted to cash within one year or the operating cycle, whichever is longer.