Current Assets Are Cash or Other Assets That Are Reasonably

question 23

Multiple Choice

Current assets are cash or other assets that are reasonably expected to be converted into cash, sold, or consumed within one year or a normal operating cycle.An operating cycle is defined as the company's ability to

• A)spend cash to payoff the company's liabilities
• B)spend cash to acquire inventory, which is sold and returned to cash
• C)spend cash to acquire inventory, which is sold to customers in the normal course of business
• D)spend cash in the generation of services, which can result in an increase in revenue and net income from operations

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Definitions:

Fixed Expenses

Recurring costs that do not vary with the level of production or sales, such as rent, salaries, and insurance.

Degree of Operating Leverage

A financial ratio that measures the sensitivity of a company's operating income to a change in its sales volume, signifying the impact of fixed versus variable costs.

Variable Expenses

Costs that vary directly with the level of production or sales volume, such as raw materials, direct labor, and sales commissions.

Fixed Expenses

Costs that remain constant for a set period of time, regardless of changes in the level of production or sales volume.