Question

Distinguish between a current liability and a long-term debt

Short answer

Both current liability and long-term debt are liabilities but they differ according to their nature and duration of getting paid off.

Step-by-step solution

Meaning of Balance Sheet

The term balance sheet represents the financial position of a company using various resources, liabilities, and owner's equity. It shows all the items briefly for a better understanding of the financial position.

Difference between Current Liability & a Long-Term Debt

Basis	Current Liability	Long term Debt
Definition	Debt payable within 1year	Debt payable more than 1year
Period	Short term liability	Long term liability
Repayment	Through current assets and revenue from operations	Through returns or long term assets
Ratios involved	Liquidity ratios	Solvency ratios
Financial statement presentation	Short term liability side in the Balance sheet	Long term liabilities side in the Balance Sheet
Changes in Working Capital	Directly has an effect	Indirectly has an effect
Risk	Operational & Business risk	Business and Collateral risk
Examples	Accounts payable Interest payable Short term loan Bank overdraft Accrued expenses	Mortgages Car payments Loan on Fixed assets Bonds payable Term loans