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RUNNING HEAD: CURRENT LABILITIES

Current Liabilities Week 3 Assignment Beverly Clarkson November 23, 2014 Daniel Carraher

RUNNING HEAD: CURRENT LIABILITIES

Current Liabilities

Current liabilities are accounts that are payable in less than one year. Current liabilities are classified either current or long term which allows investors and creditor assess risk. Accounts that are classified under current liabilities are: account payable, dividends payable, note payable, accrued liabilities and income taxes that are related to liabilities. Current assets are, “cash and other resources that are reasonably expected to be realized in cash or sold or consumed within one year of the balance sheet date.” (Simple studies, Accounting Made Simple, 2010). The accounts listed as current assets are: account receivable, cash, notes receivable, and prepaid assets. Current liabilities minus current assets equal working capital. This is why companies pay current liabilities out of current assets within one year. It is critical that the company pays short-term debts because it shows the ability to meet current obligations when they are due. Current assets are assets that can be converted into cash during the upcoming accounting period. By using current assets can reduce the amount of liquid funds for future use. Liquidity is “the ability to pay maturing obligation and meet unexpected needs for cash.” (Weygandt, J.J., Kimmel, P.D). This is working capital and as current ratio. Current ratio is current assets divided by current liabilities. A company that has a 2:1

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