How do current assets differ from non-current assets?

The distinction between current assets and non-current assets is fundamental in financial management. Current assets are defined as those assets that a company expects to convert into cash or use up within one year. This liquidity aspect makes current assets essential for managing day-to-day operations, as they provide the resources needed to cover short-term liabilities and operational expenses.

For example, cash, accounts receivable, and inventory are typical current assets. They are crucial for maintaining the flow of operations and ensuring that a business can meet its short-term obligations effectively.

The other options do not accurately describe the differences between current and non-current assets. Long-term investments are more aligned with non-current assets, which are held for many years and involve less frequent conversion into cash. Non-current assets typically include property, plant, and equipment, and while they can generate cash flow, they are not designed for immediate liquidity like current assets. Understanding this distinction is vital for effective financial decision-making and liquidity management in a business context.