GED Practice Exam 2025 – Complete Test Prep and Guide

Accounts receivable are classified as current assets because they represent money that is owed to a business by its customers for goods or services that have been delivered or used but not yet paid for. These amounts are expected to be converted into cash within a year or during the normal operating cycle of the business, making them short-term financial assets.

Current assets are crucial for managing a company's day-to-day operations, as they provide liquidity necessary to cover immediate obligations. This classification stands in contrast to fixed assets, which are long-term investments in tangible or intangible items that a company uses in its operations, such as buildings or equipment. Similarly, fixed liabilities pertain to long-term debts, while current liabilities consist of obligations that are due within one year, such as accounts payable or short-term loans. Therefore, accounts receivable's expectation of being collected within a short period aligns perfectly with the definition of current assets.