12Q - Intermediate Accounting (Kieso)

Question

What is the relationship between current assets and current liabilities?

Step-by-Step Solution

Answer

Current liabilities are liquidated using the current assets as they both get due or provide benefit within one year.

Definition of Operating Cycle

The operating cycle can be defined as the passage of time taken by the business entity from converting raw material or producing the goods to generating cash from the sale of such goods. 

Relationship between current assets and current liabilities

The main relation between the current assets and current liabilities is that the business entity uses the current assets for liquidating or fulfilling the current liabilities because the current liabilities get due within the operating cycle, and the benefits from the current assets are also generated within the operating cycle.