Multiple Choice
Which of the following lists correctly describes the essential elements of a contract in accounting?
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1. Introduction to Accounting
Types of Accounting
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Which of the following is NOT a current asset?
A
Equipment
B
Inventory
C
Prepaid Expenses
D
Accounts Receivable
Verified step by step guidance1
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.
Review the options provided: Equipment, Inventory, Prepaid Expenses, and Accounts Receivable.
Analyze each option: Equipment is a long-term asset because it is used in operations over multiple years and is not expected to be converted into cash within one year. Inventory, Prepaid Expenses, and Accounts Receivable are all current assets as they are expected to be used or converted into cash within the operating cycle.
Compare the characteristics of Equipment with the definition of current assets: Equipment does not meet the criteria of a current asset because it is not liquid and is classified as a non-current asset on the balance sheet.
Conclude that Equipment is NOT a current asset, while Inventory, Prepaid Expenses, and Accounts Receivable are current assets.
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