Which of the following is a current asset?

A) Bills receivable
B) Finished goods inventory
C) Furniture
D) Plant & Machinery
E) Prepaid expenses
F) Work in progress

Choose the correct answer from the options given below.

ABEF

The correct answer is option 3- ABEF.

C) Furniture and D) Plant & Machinery are fixed asset.

Apart from the investment in fixed assets every business organisation needs to invest in current assets. This investment facilitates smooth day-to-day operations of the business. Current assets are usually more liquid but contribute less to the profits than fixed assets. Examples of current assets, in order of their liquidity, are as under.

1. Cash in hand/Cash at Bank
2. Marketable securities
3. Bills receivable
4. Debtors
5. Finished goods inventory
6. Work in progress
7. Raw materials
8. Prepaid expenses

These assets are expected to get converted into cash or cash equivalents within a period of one year. These provide liquidity to the business. An asset is more liquid if it can be converted into cash quicker and without reduction in value. Insufficient investment in current assets may make it more difficult for an organisation to meet its payment obligations. However, these assets provide little or low return. Hence, a balance needs to be struck between liquidity and profitability.