Utah General Contractors - Business and Law Practice Exam

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

1. Long-term Liabilities

2. Current Liabilities

3. Equity

4. Contingent Liabilities

The correct answer is: Current Liabilities

The correct answer is B, as notes payable, accounts payable, unpaid wages, and taxes due all fall under the category of current liabilities. Current liabilities are obligations that a business expects to settle within one year or within its operating cycle, whichever is longer. These include debts and obligations that a company is liable to pay off in the short term, generally involving cash outflows or services rendered. Notes payable refers to short-term loans that must be repaid within a year, while accounts payable represents amounts owed to suppliers for goods and services received that haven’t yet been paid for. Unpaid wages are salaries owed to employees, and taxes due represent tax liabilities that must be settled in the near term. All these examples highlight obligations expecting a short-term settlement, confirming their classification as current liabilities. On the other hand, long-term liabilities refer to debts and obligations that are due beyond one year, equity reflects the ownership stake in the company after all liabilities have been accounted for, and contingent liabilities are potential obligations that may arise depending on the outcome of a future event. These distinctions are crucial in understanding the financial health and obligations of a business.