which of the following is not a current liability on december 31 2025

House Authors

2 min read

·

16-11-2024

54

0

Share

Which of the Following Is NOT a Current Liability on December 31, 2025? Understanding Current vs. Non-Current Liabilities

Determining whether a liability is current or non-current is crucial for accurate financial reporting. A current liability is an obligation due within one year or the operating cycle, whichever is longer. A non-current liability, conversely, is due beyond that timeframe. Let's explore this with a hypothetical example and clarify the distinctions.

Scenario: Consider the following list of potential liabilities for a company on December 31, 2025:

• Accounts Payable: Money owed to suppliers for goods or services purchased on credit.
• Salaries Payable: Unpaid wages owed to employees.
• Short-Term Loan Payable: A loan due within the next 12 months.
• Long-Term Loan Payable: A loan with a maturity date beyond December 31, 2026.
• Deferred Revenue: Advance payments received for goods or services yet to be delivered.
• Bonds Payable (due in 2030): Money borrowed through the issuance of bonds.

Identifying the Non-Current Liability:

Out of the options listed, the Long-Term Loan Payable, the Bonds Payable (due in 2030) are not current liabilities as of December 31, 2025. Their due dates extend beyond the one-year threshold defining current liabilities.

Understanding Each Liability Type:

Let's break down why the other items are considered current liabilities:

• Accounts Payable: These are typically short-term obligations settled within a few weeks or months.
• Salaries Payable: Wages are usually paid on a regular basis (e.g., weekly or bi-weekly), making them current liabilities.
• Short-Term Loan Payable: By definition, its due date falls within the next year.
• Deferred Revenue: This represents an obligation to provide goods or services in the future. Since the delivery is expected within a year (or the operating cycle), it's a current liability.

The Importance of Classification:

Correctly classifying liabilities as current or non-current is vital for several reasons:

• Financial Statement Accuracy: It ensures the balance sheet accurately reflects a company's short-term and long-term obligations.
• Liquidity Assessment: Current liabilities provide insights into a company's immediate payment obligations and its ability to meet them (liquidity).
• Creditworthiness: Creditors and investors use this information to assess the company's financial health and risk profile.
• Ratio Analysis: Various financial ratios, such as the current ratio (current assets/current liabilities), depend on accurate classification of liabilities.

Conclusion:

The key to distinguishing between current and non-current liabilities lies in their due dates. Any liability due within one year or the operating cycle (whichever is longer) is a current liability. Therefore, in our example, the Long-Term Loan Payable and the Bonds Payable (due in 2030) are the liabilities that are not current liabilities on December 31, 2025. Understanding this distinction is paramount for accurate financial reporting and analysis.