Arizona Contractors License Practice Exam

Which of the following is considered a liability that must be paid within one year?

1. Long-term debts

2. Current liabilities

3. Equity investments

4. Fixed assets

The correct answer is: Current liabilities

The correct answer is current liabilities, as they are specifically defined as obligations that a company must settle within one year. This category includes debts and financial obligations such as accounts payable, short-term loans, and accruals. These obligations are crucial for assessing a company's short-term financial health and liquidity, as they directly impact the organization's ability to meet its immediate financial obligations. In contrast, long-term debts are liabilities that extend beyond one year, reflecting a company's longer-term financial commitments. Equity investments pertain to ownership stakes in other companies and do not represent liability, as they are actually part of the ownership structure rather than obligations to pay. Fixed assets are tangible assets like property and equipment that a company uses in its operations and are not classified as liabilities. Understanding these distinctions helps in accurately evaluating a company's financial statements and its overall fiscal management strategies.