In most companies current liabilities are paid within
A) one year through the creation of other current liabilities.
B) the operating cycle through the creation of other current liabilities.
C) one year or the operating cycle out of current assets.
D) the operating cycle out of current assets.

Question

Quizplus · Accepted Answer

Current liabilities are typically expected to be paid off within one year or the operating cycle, whichever is longer. They are typically paid off using current assets such as cash, accounts receivable, and inventory. Option C accurately reflects this reality, as it includes both possibilities (i.e. one year or operating cycle) and specifies that payment is made using current assets. Option A is incorrect because it only accounts for the possibility of repayment within one year, and it suggests that other current liabilities would be created to accomplish this. Option B is also incorrect because it only accounts for the operating cycle, and it suggests that other current liabilities would be created to accomplish repayment. Option D is also incomplete because it only accounts for payments made using current assets and does not consider the possibility that some liabilities may not be able to be paid off within the operating cycle.

In Most Companies Current Liabilities Are Paid Within