Question

Identify the statement about current liabilities that is NOT true.

A: A company that has more current liabilities than current assets is usually the subject of some concern.
B: 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.
C: Current liabilities include prepaid expenses.
D: Current liabilities include unearned revenues.

Answer 1

The statement about current liabilities that is NOT true is option C: Current liabilities include prepaid expenses.

Step-by-step explanation:

The statement about current liabilities that is NOT true is option C: Current liabilities include prepaid expenses.

Current liabilities are debts or obligations that a company expects to pay within one year or its operating cycle, whichever is longer. They are recorded on the balance sheet and are usually settled by using current assets. Examples of current liabilities include accounts payable, wages payable, and short-term loans.

Prepaid expenses, on the other hand, are assets, not liabilities. They represent advance payments made by a company for goods or services that will be used or consumed in the future. They are recorded on the balance sheet as an asset and are gradually expensed over time as they are used up or consumed.