Which term describes a liability due after one year?

Which term describes a liability due after one year?

• A. Current liability
• B. Non-current liability
• C. Contingent liability
• D. Operating liability

Answer: (B)

Understanding how liabilities are classified by when they’re due is the key. Current liabilities are obligations expected to be settled within one year (or the operating cycle, if longer). Non-current liabilities are those that extend beyond that period. So, a long-term loan, mortgage payable, or bonds payable—things due after more than one year—fit the description of a non-current liability. A contingent liability is a potential obligation that depends on a future event and isn’t guaranteed to occur, so it isn’t defined by a due date. An operating liability isn’t a standard category used for the due-date distinction, so it wouldn’t describe a liability due after one year. Therefore, the term that best fits a liability due after one year is non-current liability.

Understanding how liabilities are classified by when they’re due is the key. Current liabilities are obligations expected to be settled within one year (or the operating cycle, if longer). Non-current liabilities are those that extend beyond that period. So, a long-term loan, mortgage payable, or bonds payable—things due after more than one year—fit the description of a non-current liability. A contingent liability is a potential obligation that depends on a future event and isn’t guaranteed to occur, so it isn’t defined by a due date. An operating liability isn’t a standard category used for the due-date distinction, so it wouldn’t describe a liability due after one year. Therefore, the term that best fits a liability due after one year is non-current liability.