Question

Which of the following will increase a company’s current liabilities? You may select more than one answer.

A company purchases a new truck with cash.

A company receives cash from taking out a long-term loan

A company collects half of its accounts receivable balance.

A company purchases inventory on credit.

A company purchases new manufacturing equipment with cash.

Answer 1

Answer:

A company purchases inventory on credit.

Explanation:

Current liabilities are those that have to be settled within the fiscal year. The statement above does not specify if the credit has to be paid within the fiscal year, but most likely it has to, because inventories do not usually represent a long-term debt.

So under this sceneario, purchasing inventory on credit would represent an increase in the current liabilities of the firm.