What is a current asset?

A current asset is defined as something that a business owns that is expected to be converted into cash or consumed within a year, which is why the first choice is correct. Current assets typically include cash, inventories, and accounts receivable, which are all critical for day-to-day operations and short-term financial health.

This classification is important for businesses because current assets provide a view of the liquidity and operational efficiency of the company. When assessing a company’s balance sheet, current assets help creditors and investors understand how easily a company can cover its short-term obligations.

The other options focus on different types of assets or characteristics that do not align with the definition of current assets. For instance, items held for longer than 12 months refer to non-current or long-term assets, and items that are not liquid do not meet the criteria for being classified as current assets. Lastly, assets used for depreciation calculations generally pertain to fixed assets rather than current assets. Understanding current assets is essential for analyzing a company's short-term fiscal health and operational capabilities.