Contractor License Practice Exam

What type of assets are expected to be converted into cash within one year?

1. Fixed Assets

2. Current Assets

3. Intangible Assets

4. Long-term Investments

The correct answer is: Current Assets

Current assets are defined as assets that are expected to be converted into cash or used up within one year. This category primarily includes cash and cash equivalents, accounts receivable, inventory, and other assets that are expected to be liquidated or consumed in the short term. The short-term nature of current assets is essential for businesses in maintaining liquidity and meeting their immediate financial obligations. In contrast, fixed assets refer to long-term tangible assets like buildings and machinery that are not anticipated to be converted into cash within a year. Intangible assets, such as patents and trademarks, may hold significant value but are also not expected to be liquidated in the short term. Long-term investments include assets that a company intends to hold for more than a year, such as stocks and bonds, which do not fit the criteria for current assets either. This understanding underscores the importance of current assets in financial planning and cash flow management for any contractor or business entity.