Question

Question: The following items appear on the balance sheet of a company with a two-month operating cycle. Identify

the proper classification of each item is as follows: C if it is a current liability, L if it is a long-term liability,

or N if it is not a liability.

1. Notes payable (due in 13 to 24 months)

2. Notes payable (due in 6 to 12 months)

3. Notes payable (mature in five years)

4. Current portion of long-term debt

5. Notes payable (due in 120 days)

6. FUTA taxes payable

7. Accounts receivable

8. Sales taxes payable

9. Salaries payable

10. Wages payable

Answer 1

Step 2: Classification of the liabilities

1.   Notes payable due in 13 to 24 months are classified as a long-term liability.

2.   Notes payable due in 6 to 12 months are classified as a current liability.

3.   Notes that mature in the five years are classified as a long-term liability.

4.   Current portion of the long-term debt is classified as the current liability.

5.   Notes payable due in 120days are classified as a current liability.

6.   FUTA taxes are classified as a current liability.

7.   Accounts receivable are not a liability.

8.   The sales taxes payable is classified as Current liabilities.

9.   The Salaries Payable is classified as current liabilities.

The wages payable is classified as a current liability

The current liabilities are those liabilities that become due within 12 months. The current liability includes payment of cash within one year. In simple words, we can say that the current liabilities are those liabilities that are payable during the operating cycle.