Principal and interest that must be paid within a year are examples of

Principal and interest that must be paid within a year are examples of

• A. Current liabilities
• B. Long-term liabilities
• C. Equity
• D. Assets

Answer: (A)

The main idea is how obligations are classified by when they’re due. Obligations that must be settled within one year are current liabilities. Principal and interest due within that same year are exactly such obligations, so they belong in current liabilities. Long-term liabilities are debts due after more than a year, equity is the owner’s claim on assets, and assets are resources the business owns. So classifying payments due within a year as current liabilities is the correct fit.

The main idea is how obligations are classified by when they’re due. Obligations that must be settled within one year are current liabilities. Principal and interest due within that same year are exactly such obligations, so they belong in current liabilities. Long-term liabilities are debts due after more than a year, equity is the owner’s claim on assets, and assets are resources the business owns. So classifying payments due within a year as current liabilities is the correct fit.