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Accounting: Are Trade Receivables Current or Non-Current Assets?
Accounting
High School Grade 11/12 (or College Introductory Accounting)
Question Content
Are trade receivables current or non-current?
Correct Answer
Current Assets
Detailed Solution Steps
1
Step 1: Recall the definition of current assets: Assets expected to be converted to cash within 12 months or the operating cycle.
2
Step 2: Analyze trade receivables: Trade receivables are amounts owed by customers for goods/services sold on credit, which are typically collected within 30-90 days, well within 12 months. So they are Current Assets.
Knowledge Points Involved
1
Trade Receivables Classification
Trade receivables (accounts receivable) are current assets because they represent short-term amounts owed to the business by customers, expected to be collected within the normal operating cycle (usually less than 12 months).
2
Operating Cycle Definition
The operating cycle is the time it takes for a business to purchase inventory, sell it on credit, and collect cash from customers. For most businesses, this cycle is less than 12 months, so items tied to it (like trade receivables) are current assets.
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