an item which may be converted to cash within one year or one operating cycle of the firm is classified as a
I am pretty sure it is a current asset.
A current asset has a life of one year or less (e.g., inventory) while a noncurrent asset has a life in excess of one year (e.g., machinery).
An item that can be converted to cash within one year or one operating cycle of the firm is classified as a current asset.
To classify an item as a current asset, the following conditions must be met:
1. It should have a physical form or be readily convertible into cash.
2. It should have a useful life of less than one year or one operating cycle, whichever is longer.
The operating cycle refers to the time it takes for a company to convert its inventory into cash through the production and sale of goods or services. Some businesses have operating cycles longer than one year, such as those in the construction or agriculture industries. In such cases, the longer operating cycle is used to determine if an item qualifies as a current asset.
Examples of current assets include cash, cash equivalents (such as short-term investments and marketable securities), accounts receivable (amounts owed by customers), inventory (goods held for sale), and prepaid expenses (e.g., prepaid rent or insurance). These assets are expected to be converted into cash or consumed within a relatively short period.