What category does cash belong to in accounting?

• A. Fixed asset
• B. Current asset
• C. Equity
• D. Liability

Answer: (B)

Cash is classified as a current asset in accounting because it is a liquid asset that is readily available for use in the business's operations. Current assets are expected to be converted into cash or used up within one year or one operating cycle, whichever is longer. Because cash can be easily accessed to pay for short-term obligations, it plays a crucial role in a company’s liquidity management and overall financial health.

In contrast, fixed assets refer to long-term resources such as property, plant, and equipment that are not intended to be converted into cash within a year. Equity involves the ownership interest in the business, representing the residual interest after all liabilities have been settled, while liabilities are obligations that the company must pay to outsiders and can be classified as current (due within one year) or long-term (due after one year). Therefore, cash's nature as a highly liquid resource firmly places it in the current asset category.