Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

9. Current Liabilities

Types of Liabilities

Financial Accounting

9. Current Liabilities

Types of Liabilities

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Multiple Choice

If a company secures a three-year bank loan, this is considered:

an equity account

a current liability

a long-term liability

a contingent liability

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Verified step by step guidance

Understand the definition of a long-term liability: A long-term liability is a financial obligation that is not due within the current accounting year or operating cycle, typically exceeding one year.

Analyze the nature of the bank loan: Since the loan is secured for a three-year term, it exceeds the one-year threshold, making it a long-term liability.

Compare the loan to other types of liabilities: Current liabilities are obligations due within one year, equity accounts represent ownership interest, and contingent liabilities depend on uncertain future events. The three-year loan does not fit these categories.

Confirm the classification: Based on the loan's duration and the definitions of liability types, it is classified as a long-term liability.

Conclude that the correct answer is 'a long-term liability' because the loan's repayment period exceeds one year, aligning with the definition of long-term liabilities.