Asked by Bobby Ramoz on Jul 20, 2024
Verified
A current liability must be paid out of current earnings.
Current Liability
Short-term financial obligations due within one year or within the entity's operating cycle, whichever is longer, impacting the company's cash flow and liquidity.
Current Earnings
The amount of net income that a company has earned during a specified period, usually the current fiscal quarter or year.
- Differentiate short-duration liabilities from extended-duration liabilities and realize their impact on the solvency of a company.
Verified Answer
JD
Jamin DanielJul 21, 2024
Final Answer :
False
Explanation :
A current liability is defined as a liability that is expected to be settled within one fiscal year or the operating cycle, whichever is longer, and can be paid out of current assets or by creating other current liabilities, not necessarily from current earnings.
Learning Objectives
- Differentiate short-duration liabilities from extended-duration liabilities and realize their impact on the solvency of a company.