What is a current liability? From the perspective of a user of financial stateme

Question

What is a current liability? From the perspective of a user of financial statements, why do you believe current liabilities are separated from long-term liabilities? Give an examples of a situations where businesses collect monies from customers and employees and reports these amounts as a current liability

Explanation / Answer

HEY PLZ>> RATE NE FIRST..!!! I HAVE ANSWERED ALL OF YOUR PARTS..!! A)In accounting, current liabilities are often understood as all liabilities of the business that are to be settled in cash within the fiscal year or the operating cycle of a given firm, whichever period is longer. A more complete definition is that current liabilities are obligations that will be settled by current assets or by the creation of new current liabilities. Accounts payable are due within 30 days, and are paid within 30 days, but do often run past 30 days or 60 days in some situations. B)Current liabilities are separated from long-term liabilities on classified balance sheets. (You don’t have to prepare a classified balance sheet, but it is the norm. Classified balance sheets also separate the current assets from the long-term assets.) Current liabilities are the obligations that are due within one year of the balance sheet’s date and will require a cash payment or will need to be renewed. Knowing which liabilities will have to be paid within one year is important to lenders, financial analysts, owners, and executives of the company. (Current assets include cash and other assets that will turn to cash within one year.) Knowing the liabilities that are due within one year and the amount of assets turning to cash within one year are so important that it makes sense to prepare a classified balance sheet. The amount of current liabilities is used in two of the most common financial ratios. Working capital is the amount of current assets minus the amount of current liabilities. The current ratio is computed by dividing the amount of current assets by the amount of current liabilities. You can see illustrations of these ratios in Financial Ratios.

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