What are 'current assets'?

Current assets refer to assets that a company expects to convert into cash or utilize within a year. This category typically includes cash, accounts receivable, inventory, and other items that are anticipated to be liquidated or consumed in the short term. The reason this classification is vital in accounting is that it allows stakeholders to assess a company's liquidity—how readily it can meet its short-term obligations. By understanding what constitutes current assets, investors and management can better gauge financial stability and operational efficiency.

In contrast, the other options describe different financial concepts. Assets that cannot be converted to cash do not fit the definition of current assets, as current assets are specifically those that will provide cash flow in the near term. Long-term investments held by a company are not part of current assets because these investments are expected to be held for more than one year. Finally, obligations that need to be settled within one year fall under the category of current liabilities, not current assets, highlighting their different roles in financial statements.