A current liability is defined as what?

A current liability is defined as what?

• A. Payments due within one year
• B. Long-term financial obligations
• C. Assets that are highly liquid
• D. Investments held for more than one year

Answer: (A)

A current liability is indeed defined as payments due within one year. This classification comes from accounting principles that distinguish between current and long-term obligations based on the time frame in which they are expected to be settled. Current liabilities are obligations that a company must satisfy in the short term, typically within the next operating cycle or within one year, whichever is longer. Common examples include accounts payable, short-term loans, and accrued expenses, all of which require the company to use its current assets or incur further debts to meet these obligations. Understanding this distinction is crucial for effective financial management and reporting. It allows stakeholders to assess a company's liquidity and short-term financial health. In contrast, long-term liabilities pertain to obligations that extend beyond one year, and assets that are highly liquid or investments held for more than one year do not relate to liabilities inherently.

A current liability is indeed defined as payments due within one year. This classification comes from accounting principles that distinguish between current and long-term obligations based on the time frame in which they are expected to be settled. Current liabilities are obligations that a company must satisfy in the short term, typically within the next operating cycle or within one year, whichever is longer. Common examples include accounts payable, short-term loans, and accrued expenses, all of which require the company to use its current assets or incur further debts to meet these obligations.

Understanding this distinction is crucial for effective financial management and reporting. It allows stakeholders to assess a company's liquidity and short-term financial health. In contrast, long-term liabilities pertain to obligations that extend beyond one year, and assets that are highly liquid or investments held for more than one year do not relate to liabilities inherently.