What differentiates a current liability from a long-term liability
What differentiates a current liability from a long-term liability
Main Discussion
#1. What differentiates a current liability from a long-term liability? Share at least two examples of each. What are the differences in accounting for these two types of liabilities?
Professor
#2. Why is unearned revenue a liability and not asset?
Student Responses
#3. Current liabilities are any items in which the payment for such things is due within one year or operating cycle. This very simply follows a twelve month calendar and a few examples of current liabilities would be sales tax payable, interest payable, income taxes payable, or bank account overdrafts. A long term liability is any item that has a due date of one year or greater. A few example of long term liabilities would be bonds payable, long term notes payable, capital leases, or pension liabilities. In regards to the accounting for these two items they are both reported on the balance sheet separately and the reason why these two numbers are so important is due to the fact that it provides the most accurate financial standing of a company. While these debts have not yet come due and thus have not been paid these could be very easy to overlook. However, by having these numbers readily available it allows for business managers to make the most intelligent and informed financial decisions that are in the best interest of the company.
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