What is the difference between a current and long-term liability in final accounts preparation? (2024)

FAQs

What is the difference between a current and long-term liability in final accounts preparation? ›

Current liabilities are short-term obligations that a company expects to settle within one year, such as accounts payable and short-term loans. Long-term liabilities, on the other hand, are obligations extending beyond one year, like long-term loans and bonds payable.

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.

Long-term liabilities are typically due more than a year in the future. Examples of long-term liabilities include mortgage loans, bonds payable, and other long-term leases or loans, except the portion due in the current year. Short-term liabilities are due within the current year.

Current liabilities are liabilities that are payable within one operating cycle. A long-term debt is due in more than one year from the date of the balance sheet.

The current portion of long-term debt is the amount of principal and interest of the total debt that is due to be paid within one year's time. This is not to be confused with current debt, which is debt with a maturity of less than one year.

Long-term liabilities, also called long-term debts, are debts a company owes third-party creditors that are payable beyond 12 months. This distinguishes them from current liabilities, which a company must pay within 12 months. On the balance sheet, long-term liabilities appear along with current liabilities.

Businesses sort their liabilities into two categories: current and long-term. Current liabilities are debts payable within one year, while long-term liabilities are debts payable over a longer period. For example, if a business takes out a mortgage payable over a 15-year period, that is a long-term liability.

Current assets will include items such as cash, inventories, and accounts receivables. Non-current assets are long-term assets that have a useful life of more than one year and usually last for several years. Long-term assets are considered to be less liquid, meaning they can't be easily liquidated into cash.

Answer and Explanation:

It is important to separate the current and the non-current liabilities to enable the management to know the liabilities that are due within one year and those that will be around for longer than one year.

What is the difference between a current and a long-term liability provide an example of each in the healthcare sector? ›

Liabilities are also classified as either current or long-term. Current liabilities might include accounts payable, taxes owed or loans due within a year. Long-term liabilities might include issued bonds or loans not due within a year.

One way to distinguish between current liabilities and long-term liabilities is by the time frame in which they are due. Current liabilities are debts that need to be paid within a year, while long- term liabilities are debts that can be paid over an extended period (Hayes, 2023).

2) This statement is True. A long-term liability becomes a current liability when the liability becomes due within a 12-month period.

The main difference between current and long-term liabilities is the time frame in which you have to pay them. Current liabilities are due within one year or within your normal operating cycle, while long-term liabilities are due after one year or beyond your normal operating cycle.

A liability requires a future, specified payment at specified dates. Total liabilities are a combination of short-term and long term debt. Short-term, or current liabilities, are to be paid within a fiscal year, whereas long-term, or non current, debt is payable beyond one year.

A fixed liability is a debt, bond, mortgage or loan that is payable over a term exceeding one year. Such debts are better known as non-current liabilities or long-term liabilities. Debts or liabilities due within one year are known as current liabilities.

Current liabilities are listed on the balance sheet and are paid from the revenue generated by the operating activities of a company. Examples of current liabilities include accounts payables, short-term debt, accrued expenses, and dividends payable.

You would use the following formula (or some variation of it):Current liabilities = notes payable + accounts payable + short-term loans + accrued expenses + unearned revenue + current portion of long-term debts + other short-term debtsFor example: A coffee shop owner owes $300 in accounts payable, $500 in accrued ...

Total liabilities are the combined debts that an individual or company owes. They are generally broken down into three categories: short-term, long-term, and other liabilities. On the balance sheet, total liabilities plus equity must equal total assets.

Common examples of current liabilities include regular accounts payable and business taxes due (or anticipated) but not yet paid. This includes any income tax or insurance a business pays on behalf of its employees. If a business has declared a dividend but not yet paid it, this will also be a current liability.