Utah Contractor Practice Exam

Which term refers to debt obligations extending beyond one year?

1. Assets

2. Long-term liabilities

3. Current liabilities

4. Working capital

The correct answer is: Long-term liabilities

Long-term liabilities refer to debt obligations that are due to be settled over a period extending beyond one year. This category of liabilities is important for understanding a company's long-term financial structure and its capability to manage resources effectively over time. Examples of long-term liabilities include long-term loans, bonds payable, and mortgages. In contrast, current liabilities are financial obligations that are due within a one-year period, such as accounts payable and short-term loans. Assets represent what a company owns and can include both current assets, which are expected to be converted to cash within a year, and long-term assets, which take longer to convert. Working capital is a measure of a company's short-term financial health, calculated as current assets minus current liabilities, and does not encompass obligations exceeding one year. Thus, the distinction made by the term "long-term liabilities" is crucial for evaluating a company's financial resilience and planning for future expenditures and obligations.