Question

Long term loan is a _____________.

• A. long term liability
• B. None of these
• C. current liability
• D. Both A & B

Answer 1

Answer: (A)

Liabilities can be classified as long term liabilities and current liabilities.

Current liabilities are those which are generated during the course of business and to be repaid within the business cycle or say within a year. Current liabilities include sundry creditors, bills payable, outstanding expenses, bank overdrafts etc.

Long term liabilities are those which are taken by the business for creating the long term assets in the business. Like for purchase of plant & machinery etc. These are arranged through banks and financial institutions. Long term loan is a long term liability.