Question

What does the term current liabilities mean?

What assets are usually used to settle current liabilities? Give examples.

Answer 1

Current liabilities refer to the current obiliagations of the business that are to be paid within one year. Thus current liabilities are the liabilities to be paid in next one year.

Current assets are usually used to pay current liabilities. Since current assets are liquid assets, they are used to settle current liabilities.

Examples of current liabilities are accounts payable, wages payable, income tax liabilities etc.and current assets used to pay them include short term investments, collection from debtors.