What distinguishes current liabilities from non-current liabilities?

What distinguishes current liabilities from non-current liabilities?

• A. Current liabilities are obligations settled within 12 months; non-current are beyond
• B. Current liabilities are always more than non-current liabilities
• C. Non-current liabilities require collateral; current do not
• D. Current liabilities are based on company revenues; non-current are fixed costs

Answer: (A)

The distinction between current liabilities and non-current liabilities primarily revolves around the timeline for settlement. Current liabilities are obligations that a company expects to settle within one year or within its operating cycle, whichever is longer. This includes items such as accounts payable, short-term loans, and other debts that are due for payment in the near term. In contrast, non-current liabilities are obligations that a company will not settle within this time frame. These typically include long-term loans, bonds payable, and other forms of debt that are expected to mature beyond one year. The classification is important for financial reporting as it affects liquidity assessments and financial ratios used by stakeholders to evaluate the company’s financial health. Understanding this distinction helps in analyzing the company's financial position, as current liabilities represent short-term financial commitments that need to be managed effectively to ensure ongoing operational stability. The other options presented do not accurately reflect this fundamental classification of liabilities.

The distinction between current liabilities and non-current liabilities primarily revolves around the timeline for settlement. Current liabilities are obligations that a company expects to settle within one year or within its operating cycle, whichever is longer. This includes items such as accounts payable, short-term loans, and other debts that are due for payment in the near term.

In contrast, non-current liabilities are obligations that a company will not settle within this time frame. These typically include long-term loans, bonds payable, and other forms of debt that are expected to mature beyond one year. The classification is important for financial reporting as it affects liquidity assessments and financial ratios used by stakeholders to evaluate the company’s financial health.

Understanding this distinction helps in analyzing the company's financial position, as current liabilities represent short-term financial commitments that need to be managed effectively to ensure ongoing operational stability. The other options presented do not accurately reflect this fundamental classification of liabilities.