Identifying the Non-Current Liability- Unveiling the Exception in Financial Reporting

Which of the following is not a current liability?

Understanding the difference between current liabilities and long-term liabilities is crucial for financial analysis and management. Current liabilities are obligations that are expected to be settled within one year or the operating cycle of a business, whichever is longer. On the other hand, long-term liabilities are obligations that are due beyond one year. This article aims to identify which of the following options is not classified as a current liability.

1. Accounts Payable
2. Short-term Bank Loan
3. Inventory
4. Long-term Debt

Let’s delve into each option to determine which one does not fall under the category of current liabilities.

1. Accounts Payable

Accounts payable represent the amount a company owes to its suppliers for goods or services purchased on credit. Since these obligations are typically due within a short period, usually 30 to 90 days, accounts payable are considered current liabilities. Therefore, accounts payable is not the correct answer to the question.

2. Short-term Bank Loan

A short-term bank loan is a loan with a maturity period of one year or less. As it is an obligation that is expected to be settled within one year, a short-term bank loan is classified as a current liability. Hence, it is not the correct answer either.

3. Inventory

Inventory refers to the goods a company holds for sale in the ordinary course of business. While inventory is an asset, it is not a liability. Therefore, inventory is not a current liability and is the correct answer to the question.

4. Long-term Debt

Long-term debt is a liability that is due beyond one year. As it exceeds the one-year threshold, long-term debt is classified as a long-term liability, not a current liability. Thus, it is not the correct answer.

In conclusion, the correct answer to the question “Which of the following is not a current liability?” is option 3: Inventory. It is important for businesses to differentiate between current and long-term liabilities to manage their financial obligations effectively and make informed decisions.