How are current assets defined?

Current assets are defined as assets that are expected to be converted into cash or consumed within one year or within the operating cycle, whichever is longer. This definition emphasizes the short-term nature of current assets, which includes items such as cash, accounts receivable, and inventory. These assets are essential for day-to-day operations and are typically used to fund ongoing expenses and obligations.

In this context, the focus on conversion to cash within a year helps distinguish current assets from long-term assets, which are held for a longer period and are not intended for immediate use in operations. Recognizing current assets is critical for assessing a company's liquidity and financial health, as a strong level of current assets can indicate an ability to meet short-term liabilities.