The debts, which are to be repaid within a short period (year or less) are known asa)Current liabilitiesb)Fixed liabilitiesc)Contingent liabilitiesd)All of the aboveCorrect answer is option 'A'. Can you explain this answer?

Question

Answer

Current liabilities are a company's short-term financial obligations that are due within one year or within a normal operating cycle. An operating cycle, also referred to as the cash conversion cycle, is the time it takes a company to purchase inventory and convert it to cash from sales. An example of a current liability is money owed to suppliers in the form of accounts payable.

Answer

SincE the debts are to be paid in the current yeaR hencE theY are known As cuRrenT LiaBiltiEs

Answer

Current liabilities

Answer

In Current liability we need to pay within a year because it's short term liability.

Answer

Current Liabilities:
Current liabilities refer to the debts or obligations that a company is expected to repay within a short period, usually within a year or less. These liabilities are an important component of a company's balance sheet and are categorized under the current liabilities section.

Characteristics of Current Liabilities:
1. Short-Term Nature: Current liabilities have a short-term repayment period, usually within a year or the operating cycle of a business.
2. Regular Settlement: These liabilities are settled regularly as part of the normal course of a company's operations.
3. High Liquidity: Current liabilities are expected to be settled using the company's current assets or through the creation of other current liabilities.
4. Priority in Repayment: Current liabilities are given priority over long-term liabilities when it comes to repayment.

Types of Current Liabilities:
1. Accounts Payable: Amounts owed by a company to its suppliers for goods or services purchased on credit.
2. Short-Term Loans: Borrowings or loans that are due for repayment within a year.
3. Accrued Expenses: Expenses that have been incurred but not yet paid, such as salaries, rent, utilities, or taxes.
4. Unearned Revenue: Money received in advance for goods or services that are yet to be delivered.
5. Current Portion of Long-Term Debt: The portion of long-term debt that is due for repayment within a year.
6. Dividends Payable: Dividends declared by a company but not yet paid to the shareholders.

Fixed Liabilities and Contingent Liabilities:
- Fixed liabilities are long-term obligations that are not due for repayment within a year. These liabilities include long-term loans, bonds, mortgages, and lease agreements.
- Contingent liabilities are potential obligations that may or may not arise depending on the occurrence or non-occurrence of a specific event. These liabilities are usually disclosed in the financial statements as footnotes because their occurrence is uncertain.

Conclusion:
In summary, the debts that are to be repaid within a short period, typically a year or less, are classified as current liabilities. These liabilities play a crucial role in assessing a company's short-term financial obligations and its ability to meet them using its current assets or other current liabilities. Fixed liabilities and contingent liabilities, on the other hand, are separate categories of obligations with different characteristics and timeframes for repayment.

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