An Account Which Would Be Classified as a Current Liability

question 21

Multiple Choice

An account which would be classified as a current liability is

• A) dividends payable in the form of a company's stock.
• B) accounts payable-debit balances.
• C) losses expected to be incurred within the next twelve months in excess of the company's insurance coverage.
• D) none of these answers are correct.

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Definitions:

Liquidity Reserves

Liquid assets held by an entity as a buffer against future contingencies or unforeseen expenses.

Operating Cycle

The average period between purchasing or acquiring inventory and receiving cash from sales of the inventory, critical for managing company liquidity.

Cash Cycle

The time period between the outlay of cash for the purchase of inventory and the collection of cash from customers for the sale of that inventory.

Short Term Financing

Financing obtained for a time period of up to one year, used to fund immediate operational needs such as inventory purchase or payroll.