Question

How do most companies pay the current liabilities incurred by day-to-day operations?.

Answer 1

Current assets, or possessions used up within a year, are generally used to settle current liabilities.

Why do you use the term "current liabilities"?

• Current liabilities are debts or commitments that fall due within a year or during the regular business cycle. Additionally, current obligations are paid off by using a current asset, either by generating a fresh current liability or by using cash.
• In accounting, current liabilities are frequently interpreted as all debts owed by a company that must be paid in cash within the fiscal year or the operational cycle of that particular company, whichever is longer.
• Current assets, or possessions used up within a year, are generally used to settle current liabilities. Accounts payable, short-term loans, dividends, and notes payable are a few examples of current liabilities, along with any outstanding income taxes.  

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