What are current liabilities?

What are current liabilities?

• A. Long-term financial responsibilities of a business
• B. Obligations expected to be settled within one year
• C. Assets that can easily be converted to cash
• D. Debt obligations with no defined repayment schedule

Answer: (B)

Current liabilities refer specifically to a company's financial obligations that are expected to be settled within one year or within the company's operating cycle, whichever is longer. This classification is crucial for understanding a business's short-term financial health and liquidity. Typical examples of current liabilities include accounts payable, short-term loans, and accrued expenses. These obligations must be fulfilled in the near term, which impacts the company's cash flow and working capital management. In contrast, the other options describe elements that do not fit the definition of current liabilities. Long-term financial responsibilities (the first choice) relate to obligations that extend beyond one year, while assets that can be easily converted to cash (the third choice) refer to current assets, rather than liabilities. Lastly, debt obligations with no defined repayment schedule (the fourth choice) could be indicative of long-term liabilities or other financial arrangements, but they do not fall under the scope of current liabilities, which are specifically about short-term financial commitments.

Current liabilities refer specifically to a company's financial obligations that are expected to be settled within one year or within the company's operating cycle, whichever is longer. This classification is crucial for understanding a business's short-term financial health and liquidity. Typical examples of current liabilities include accounts payable, short-term loans, and accrued expenses. These obligations must be fulfilled in the near term, which impacts the company's cash flow and working capital management.

In contrast, the other options describe elements that do not fit the definition of current liabilities. Long-term financial responsibilities (the first choice) relate to obligations that extend beyond one year, while assets that can be easily converted to cash (the third choice) refer to current assets, rather than liabilities. Lastly, debt obligations with no defined repayment schedule (the fourth choice) could be indicative of long-term liabilities or other financial arrangements, but they do not fall under the scope of current liabilities, which are specifically about short-term financial commitments.