Question

Which of the following liabilities is often referred to as "free debt" because it rarely carries any interest if paid within a specified period of time?

Working capital loan
Line of credit
None of the other answers is correct - all liabilities carry an interest rate
Accounts payable

Answer 1

Accounts payable is considered 'free debt' when it is paid within the specified period because it does not accrue interest during that time, whereas other forms of debt like loans or bonds typically do.

Step-by-step explanation:

The liability that is often referred to as "free debt" because it rarely carries any interest if paid within a specified period of time is Accounts payable. This form of liability arises when a company receives goods or services from another entity and is invoiced for them with the agreement to pay later, usually within an agreed period. If the payment is made within this period, no interest is charged, hence it’s often considered "free" as opposed to other forms of debt like loans or bonds that typically accrue interest over time.