On the balance sheet, which of the following is classified as a current asset?

• A. Retained Earnings
• B. Equipment
• C. Common Stock
• D. Accounts Receivable

Answer: (D)

Verified step by step guidance

1. Understand the concept of current assets: Current assets are resources that are expected to be converted into cash, sold, or consumed within one year or the operating cycle, whichever is longer. Examples include cash, accounts receivable, inventory, and prepaid expenses.
2. Review the options provided: Retained Earnings, Equipment, Common Stock, and Accounts Receivable. Determine which of these fits the definition of a current asset.
3. Analyze Retained Earnings: Retained Earnings represent accumulated profits that are reinvested in the business and are part of equity, not an asset. Therefore, it is not classified as a current asset.
4. Analyze Equipment: Equipment is a long-term asset used in operations and is classified as a non-current asset. It does not meet the criteria for current assets.
5. Analyze Accounts Receivable: Accounts Receivable represents amounts owed to the company by customers for goods or services provided on credit. Since these amounts are expected to be collected within one year, they are classified as a current asset on the balance sheet.