DECA Retail Merchandising Practice Exam

Which of the following assets typically requires more than a year to convert into cash?

1. Investments

2. Fixed assets

3. Current assets

4. Intangible assets

The correct answer is: Fixed assets

The correct answer indicates that fixed assets are the type of assets that typically require more than a year to convert into cash. Fixed assets include long-term investments in property, plant, and equipment, such as buildings, machinery, and vehicles, which are utilized in the business for more than one operating cycle. The conversion of these assets into cash usually involves a lengthy process, such as selling real estate or equipment, and it is not common for these assets to be liquidated quickly. In contrast, investments can vary; while some investments might take time to cash out, others like stocks can often be sold more readily in a market. Current assets are intended to be converted into cash within a year and typically include items like inventory and accounts receivable. Intangible assets, while they can be more complex, usually represent concepts like patents or trademarks, which can also take significant time to market or monetize, but much depends on the specific strategy surrounding them. Understanding the nature of fixed assets helps emphasize their long-term characteristic and their role within the financial structure of a business, highlighting the difference in liquidity among the various types of assets.