Which term describes debts repayable within twelve months?

Which term describes debts repayable within twelve months?

• A. Current assets
• B. Long-term liabilities
• C. Debtors
• D. Current liabilities

Answer: (D)

Classifying items by how soon they must be settled helps assess liquidity. Debts that must be repaid within a year are current liabilities because they are short-term obligations. This differs from long-term liabilities, which are due after more than a year, and from current assets, which are resources the business expects to convert to cash within a year. Debtors are amounts owed to the business (assets, not liabilities). So the term for debts repayable within twelve months is current liabilities.

Classifying items by how soon they must be settled helps assess liquidity. Debts that must be repaid within a year are current liabilities because they are short-term obligations. This differs from long-term liabilities, which are due after more than a year, and from current assets, which are resources the business expects to convert to cash within a year. Debtors are amounts owed to the business (assets, not liabilities). So the term for debts repayable within twelve months is current liabilities.