Question

Please answer the following question, required 150-200 words. Q: List and provide detail of what kind of transaction or activities that possibility produce the current liabilities.

Answer 1

Current liabilities refer to short-term liabilities or obligations of the business which are to be repaid within a period of less than one year. Current liabilities include accounts payable, expenses payable and short-term loans. There are various methods by which current liabilities are created. In case of credit purchases, accounts payables are created since the amount due on purchase is not paid immediately but deferred for later. Similarly, expenses are incurred during the ordinary course of business such as electricity and salaries. These expenses may not be paid out immediately. Instead of these may be kept outstanding to be paid at a future date. Hence expenses which are not paid immediately are created as current liabilities in the form of expenses outstanding. A business may also take short-term loans as a form of financing. These short-term loans are current liabilities and the transaction involves receipt of cash in return for creation of a current liability.