Which of the following items is classified as a current asset on a balance sheet?

To determine which item is classified as a current asset, it's important to understand the definition of current assets. Current assets are those that are expected to be converted into cash or used up within one year from the date of the balance sheet.

Inventory falls under current assets since it is expected to be sold as part of business operations within the operating cycle. Accounts payable, on the other hand, represent obligations and are classified as current liabilities, not assets. Long-term investments are meant for periods exceeding one year, thus they do not fit the current asset classification. Prepaid expenses are also classified as current assets because they are payments made in advance for services or goods to be received within the upcoming year.

The correct understanding highlights that prepaid expenses represent a resource that will provide future economic benefits and is thus categorized among current assets.