Which of the following statements concerning current liabilities is incorrect?
A) Current liabilities include unearned revenues.
B) A company that has more current liabilities than current assets is usually the subject of some concern.
C) Current liabilities include prepaid expenses.
D) A current liability is a debt that can reasonably be expected to be paid out of existing current assets or result in the creation of other current liabilities.

Question

Quizplus · Accepted Answer

Prepaid expenses are considered assets, not liabilities. Current liabilities include obligations that are due within one year or within the normal operating cycle of a business, whichever is longer. This includes unearned revenues, which are payments received in advance for goods or services that have not yet been delivered or performed. A company that has more current liabilities than current assets may struggle to meet its short-term obligations and may face financial difficulties. The definition of a current liability specifies that it must be payable out of existing current assets or result in the creation of other current liabilities, meaning that it is a short-term obligation that is expected to be resolved within a relatively short time period.

Which of the Following Statements Concerning Current Liabilities Is Incorrect