Question

Answer the following question in your own words. Your answer must have a 150 minimum word count:

• Describe the business purpose of current liabilities and give several examples of current liabilities.

Answer 1

Current liabilities are the amount of money(that shows in a company's balance sheet) is owed to someone and has to be paid in the future, such as tax, debt, interest and mortgage payments. Usually Current liabilities should be paid within a year.

Examples for current liabilities short term loans, dues for the service providers, credit card debts, taxes( sales tax and payroll taxes), portion ot the long term loan that to be paid within next yeat.

Current liabilities of an organizations shows the amount that the company obliged to pay within a year. Failure in paying the current liabilities may affect the organisation's image. It results in the bankruptcy of the organisation. bankruptcy refers to a legally declared or recognized condition of insolvency of a person or organization. Current liabilities can be paid by cash, through the assets or with a new liability ( short term or long term). Company's financial strength can be determined by Current ratio that can be obtained by calculating the ratio of current assets devided by Current liabilities.