Contractor License Practice Exam

Notes payable, accounts payable, unpaid wages and taxes due are examples of what?

1. Fixed Assets

2. Current Assets

3. Current Liabilities

4. Long-term Liabilities

The correct answer is: Current Liabilities

The correct answer is rooted in the definition of current liabilities within accounting practices. Current liabilities are obligations that a company is required to pay within one year or within a normal operating cycle. Notes payable, accounts payable, unpaid wages, and taxes due all fall under this category because they represent short-term financial obligations that must be settled soon. Notes payable typically refer to written promissory notes where a borrower agrees to pay a lender a specific amount on or before a certain date. Accounts payable are amounts a company owes to suppliers or vendors for goods and services received but not yet paid for. Unpaid wages are salaries that are due to employees for work performed but not yet disbursed, while taxes due refers to any liability for taxes that have not yet been paid. These components are liabilities that require action in the near term, distinguishing them from fixed assets, which are long-term resources like machinery or buildings, and current assets, which are a company’s short-term resources like cash or inventory. Long-term liabilities, on the other hand, are obligations that are not due within the next year, such as loans or bonds that extend beyond one year. Overall, understanding current liabilities is crucial for assessing an organization's short-term financial health and liquidity, making it easier to