#1
Which of the following is considered a current liability?
Accounts payable
ExplanationCurrent obligations to suppliers.
#2
What is the primary purpose of a note payable?
To record short-term loans
ExplanationRecording written promises for short-term borrowing.
#3
When are current liabilities usually due?
Within one year
ExplanationShort-term obligations due in a year.
#4
Which financial statement includes current liabilities?
Balance sheet
ExplanationSnapshot of a company's financial position.
#5
Which of the following is NOT typically considered a current liability?
Notes payable due in two years
ExplanationLong-term nature, not due within a year.
#6
How does a company classify short-term borrowings in its financial statements?
As current liabilities
ExplanationShort-term debts categorized in current liabilities.
#7
What is the formula to calculate the current ratio?
Current Assets / Current Liabilities
ExplanationMeasure of a company's ability to cover short-term obligations.
#8
Which of the following is a type of current liability that represents taxes owed but not yet paid?
Accrued liabilities
ExplanationTaxes incurred but not yet settled.
#9
Which of the following is NOT a typical example of a current liability?
Accounts receivable
ExplanationAccounts receivable are assets, not liabilities.
#10
Which of the following is considered a contingent liability?
Warranty liability
ExplanationPotential obligation depending on future events.
#11
What is the purpose of classifying liabilities as current?
To show their maturity within a year
ExplanationHighlighting short-term payment obligations.
#12
Which of the following is NOT an example of an accrued liability?
Accounts payable
ExplanationAccounts payable are not accrued but invoiced.
#13
Which of the following is a characteristic of current liabilities?
Obligations that arise from normal operations
ExplanationShort-term obligations from regular business activities.
#14
What is the main difference between accounts payable and notes payable?
Accounts payable are obligations to suppliers, while notes payable are written promises to pay a specific amount
ExplanationAccounts payable involve supplier debts; notes payable are formal promises.
#15
What is the purpose of recording accrued liabilities?
To record expenses incurred but not yet paid
ExplanationCapturing expenses accrued but not settled.
#16
Which financial ratio is calculated using current liabilities?
Current Ratio
ExplanationRatio assessing short-term solvency.
#17
What happens to the current ratio if current liabilities increase?
Decreases
ExplanationMore liabilities relative to assets affect the ratio negatively.
#18
What is the effect on working capital if a company pays off a current liability?
Increases
ExplanationReducing short-term debts boosts working capital.
#19
What does a high current ratio indicate about a company's liquidity?
Higher liquidity
ExplanationStrong ability to cover short-term obligations.
#20
What is the effect on the current ratio if current assets decrease?
Decreases
ExplanationReduced numerator in the ratio lowers the overall value.
#21
How do you calculate the quick ratio?
(Current Assets - Inventory) / Current Liabilities
ExplanationQuick measure of a company's ability to meet short-term liabilities.
#22
Which of the following is a disadvantage of having too many current liabilities?
Higher risk of bankruptcy
ExplanationIncreased short-term obligations pose bankruptcy risk.
#23
What does a decrease in current liabilities typically indicate?
Improved liquidity
ExplanationReduced short-term debts signify better liquidity.
#24
How does the issuance of short-term notes payable affect a company's liquidity?
Decreases liquidity
ExplanationAdding short-term debts reduces overall liquidity.
#25
Which of the following ratios does not directly involve current liabilities?
Return on assets
ExplanationRatio assessing profitability without focusing on current liabilities.