What is a short-term liability?

• A. An obligation paid off within one year.
• B. Debt due in more than one year.
• C. An obligation that will never be paid.
• D. An asset that generates income.

Answer: (A)

Short-term liabilities are obligations that must be settled within one year. This timing focuses on what part of a company’s finances will require cash in the near term, so these are listed as current liabilities on the balance sheet. Examples include payments you owe to suppliers (accounts payable), short-term borrowings, and accrued expenses that are due soon. The idea is that the obligation is expected to be paid off within 12 months, which differentiates it from long-term liabilities that are due later. An obligation that will never be paid isn’t treated as a typical liability in this context, and an asset that generates income is not a liability at all.