Question

Which one of the following is a current liability?

1) Accounts Receivable
2) Accounts Payable
3) Property, Plant, and Equipment
4) Retained Earnings

Answer 1

Accounts Payable is the correct answer as it is a current liability, referring to the money a company owes to suppliers or creditors. It is due within one year and paid using the company's current assets, distinguishing it from assets and equity.

Step-by-step explanation:

Out of the options provided, Accounts Payable is a current liability. A current liability refers to a debt or an obligation that is due within one year and is to be paid out of current assets. Now let's go through the list:

• Accounts Receivable is an asset representing money owed to the company by customers for credit sales made.
• Accounts Payable is a current liability, comprising money a company owes to its suppliers or creditors for goods or services received.
• Property, Plant, and Equipment (PPE) are long-term assets, utilized for more than one year in the operations of a business.
• Retained Earnings are a component of shareholders' equity, representing earnings not distributed as dividends.

The nature of Accounts Payable makes it the clear current liability among the choices given. Understanding the classification of accounts on a balance sheet helps in assessing a company's financial health.