International Association of Accessibility Professionals (IAAP) Certified Administrative Professional (CAP) Practice Exam

Which term is typically defined as debts that a company must pay to its creditors within a short period?

1. Income statements

2. Accounts receivable

3. Current liabilities

4. Long-term investments

The correct answer is: Current liabilities

The term that refers to debts a company must pay to its creditors in the short term is "current liabilities." Current liabilities encompass obligations such as accounts payable, short-term loans, and other debts that are due within one year. This classification is essential for assessing a company’s short-term financial health, as it provides insight into the liquidity of the business and its ability to meet its financial obligations promptly. In contrast, income statements provide a summary of a company's revenues and expenses over a specific period, thus focusing on profitability rather than liabilities. Accounts receivable refers to the money owed to a company by its customers for goods and services sold on credit, which is an asset rather than a liability. Long-term investments involve assets that are expected to provide returns beyond a year and do not fall under the category of liabilities at all. Understanding these distinctions clarifies why current liabilities is the appropriate term for short-term debts owed by a company.