Question

Why do you think it is so important to distinguish current and noncurrent liabilities?

Answer 1

Answer:

Liabilities are legal obligation that ties or binds an individual or entity to transfer economic advantages including cash, products or services to another individual or substance after some time.

Current liability:

A current liability can be characterized as an obligation emerging of past exchanges to be satisfied with one financial time period of an entity .For the most part these obligations are satisfied using current resources or current assets

Ex : sundry creditors ,Accounts payable.

Non-current liability :

A non-current liability can be characterized as an obligation emerging out of past exchanges or transactions to be satisfied over/after various financial time periods of an entity .Generally these obligations are satisfied through utilization of financing activities.

Ex : Bonds ,long term loans and so on

The main distinguishing characteristics of current and a non-current liabilities are as per the following:

i)Time :

The time for satisfying the current liability is commonly smaller than an year , Whereas the time for satisfying the non-current obligation is commonly more than one year and can span out to quite a long while.

ii)General fulfillment technique:

General fulfillment technique of current liabilities are done through utilization of current resources whereas the obligations related non-current liabilities are done through financing techniques.