What are current liabilities commonly referred to as?

What are current liabilities commonly referred to as?

• A. Long-term financial obligations
• B. Short-term liabilities
• C. Fixed financial commitments
• D. Deferred tax liabilities

Answer: (B)

Current liabilities are commonly referred to as short-term liabilities because they represent financial obligations that a business is expected to settle within one year or within its operating cycle, whichever is longer. These liabilities typically include accounts payable, short-term loans, and accrued expenses. The term "short-term" highlights the nature of these obligations, indicating that they are due in the near future, which is crucial for assessing a company's liquidity and overall financial health. Correctly identifying current liabilities as short-term liabilities helps stakeholders understand the company’s immediate financial responsibilities and informs decision-making related to cash flow management. Options such as long-term financial obligations, fixed financial commitments, and deferred tax liabilities do not align with the classification of current liabilities as they represent obligations that extend beyond the one-year timeframe or are related to specific tax deferrals rather than to day-to-day financial operations.

Current liabilities are commonly referred to as short-term liabilities because they represent financial obligations that a business is expected to settle within one year or within its operating cycle, whichever is longer. These liabilities typically include accounts payable, short-term loans, and accrued expenses.

The term "short-term" highlights the nature of these obligations, indicating that they are due in the near future, which is crucial for assessing a company's liquidity and overall financial health. Correctly identifying current liabilities as short-term liabilities helps stakeholders understand the company’s immediate financial responsibilities and informs decision-making related to cash flow management.

Options such as long-term financial obligations, fixed financial commitments, and deferred tax liabilities do not align with the classification of current liabilities as they represent obligations that extend beyond the one-year timeframe or are related to specific tax deferrals rather than to day-to-day financial operations.