Discussion Questions
Week#2
Acc/400

1.) What is a current liability? What is a noncurrent liability? What is the difference between the two types of liabilities? In which financial statement would you find these liabilities? Current liabilities are described as debts or obligations an organization owes within one year. These liabilities are exposed on the company’s balance sheet and involve the short-term debt, accrued liabilities, accounts payable, and other debts. Fundamentally, current liabilities are bills that are due to suppliers and creditors in a short time period. Typically firm’s cash current assets or withdraw cash to pay for their current liabilities. Current liabilities (short-term debt) are a significant figure, typically when an organization is in financial distress because the whole amount of the dividend must be paid back relatively quickly. Analysts and creditors utilize the current ratio (divides current assets by liabilities) or quick ratio (divides current assets minus inventories by current liabilities). This will allow them to determine if the company is capable of paying off its current liabilities (Investopedia, 2012). Noncurrent liabilities are described by long-term monetary obligations that are not due within a year. Noncurrent liabilities involve long-term borrowing, long-term lease obligations, and bonds payable. Noncurrent liabilities are also reported on a firm’s balance sheet. Important issues involving noncurrent liabilities are investors are typically interested with organizations noncurrent liabilities because it allows them to see if the company has too much debt comparative to the cash flow. The most important noncurrent liability is long-term debt because this represents money that a company has borrowed. However, too much long-term debt is risky for a company because of the interest on debt that has to be paid