Utah Contractor Practice Exam

Which of the following best describes a characteristic of current liabilities?

1. Debts payable within one year

2. Debts payable beyond one year

3. Assets that exceed liabilities

4. Investments held for less than a year

The correct answer is: Debts payable within one year

Current liabilities are obligations that a company is required to settle within one year or within its operating cycle, whichever is longer. This characteristic is essential for assessing a company's short-term financial health and liquidity, as it reflects the amount of resources that will be needed to cover immediate obligations. Debt payable within one year typically includes items like accounts payable, short-term loans, and other financial obligations that are due soon. This understanding is critical for contractors and businesses in managing cash flow and ensuring that they can meet their short-term commitments efficiently. The other options do not fit the definition of current liabilities; they refer to various other financial terms or concepts unrelated to the specifics of current liabilities. For example, debts payable beyond one year relate to long-term liabilities, while assets that exceed liabilities focus on net worth rather than the timing of liabilities. Investments held for less than a year refer to short-term investments, which again do not address the nature of current liabilities specifically.