In accounting, what are 'current liabilities'?

Current liabilities are defined as obligations that a company expects to settle within one year or within its operating cycle, whichever is longer. This classification is important in the context of liquidity management, as it helps assess a business's ability to meet its short-term obligations.

Liabilities are categorized based on the timeframe for settlement, with current liabilities encompassing items such as accounts payable, short-term loans, accrued expenses, and other financial obligations that are due soon. Understanding which liabilities are current helps stakeholders evaluate the short-term financial health of the business, particularly its working capital and cash flow position.

In contrast, the other options define liabilities in a way that does not align with the standard accounting definitions. For instance, liabilities expected to be settled in more than one year refer to long-term liabilities, while stating that all debts owed by a business includes both current and long-term liabilities, making it too broad. Similarly, long-term financing sources describe a specific type of financing rather than classifying liabilities in terms of their maturity. Each of these distinctions highlights why the delineation between current and non-current liabilities is crucial in financial accounting.