Question

5. What is the difference between a current asset and a current liability? Give three examples of each.

Answer 1

Answer 5)

✓ difference between current assets and current liabilities:

* Current assets are those assets of a company that can be converted into liquid cash within a year (12 months).

These current assets are realised in cash and are utilised in an accounting period. If these are more than current liabilities, then the firm has more working capital.

Examples: debtors, cash in hand, inventory, bills receivables.

* Current liabilities are those liabilities, that must be repaid or disposed off within a year (12 months).

These are the short term debts that needs to be paid or settled in liquid cash or bank, or by launching new liability. If these current liabilities are more than current assets, then the company has low working capital and might not be able to meet liquidity requirements.

Examples: creditors, bills payable, overdraft, expenses outstanding, etc.

(Please like the answer it will encourage me.)