Practice prompt · Q:transactions-to-statements/current-classification-001

Classify an ordinary nine-month operating cycle

Formative check on current asset and current liability classification from bounded operating cycle and maturity facts.

Updated Aug 6, 2026 Review due Nov 6, 2026

Practice

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A nonfinancial entity has an ordinary nine-month operating cycle. At December 31 it reports unrestricted Cash, a collectible trade receivable due in six months, operating Inventory expected to sell in eight months, Accounts Payable due in sixty days, and bank debt contractually due in ten months. No restriction, covenant breach, refinancing, or specialized guidance changes the stated facts. Which classification is supported?

Choose the best answer. A Classify unrestricted Cash, the six-month trade receivable, and eight-month operating Inventory as current assets; classify the sixty-day payable and ten-month debt as current liabilities under the stated ordinary facts. B Classify only Cash as current because receivables and Inventory are not immediately available to pay obligations. C Classify the bank debt as noncurrent because all bank financing is long term unless management plans to repay it early. D Use the December 31 reporting date as the end of the operating cycle, so no transaction crossing year-end can be current.

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Answer: A

Under the explicitly ordinary nine-month cycle and stated maturities, all three resources are current assets and both obligations are current liabilities. Restrictions, doubtful collection, unusual inventory facts, covenant or refinancing issues, or different contract terms could reopen a conclusion, but none is supplied. Choice A is correct.