Question

Which of the following is not acceptable treatment for the presentation of current liabilities?

A. Listing current liabilities in order of maturity.
B. Listing current liabilities according to amount.
C. Offsetting current liabilities against assets that are to be applied to their liquidation.
D. Showing currently maturing long-term debt as part of current liabilities.

Answer 1

Offsetting current liabilities against assets on the balance sheet is not an acceptable treatment because it does not accurately reflect the financial health and liquidity of the entity.

Step-by-step explanation:

The treatment of current liabilities on the balance sheet must reflect the true financial position of a business. Options A, B, and D are generally acceptable practices. However, option C, offsetting current liabilities against assets that are to be applied to their liquidation, is not typically acceptable under most accounting principles. This is due to the concept of asset-liability time mismatch, where liabilities can be demanded in the short term, while the corresponding assets are usually realized over the long term. Offset can mislead stakeholders about the liquidity and financial health of the entity.