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Which one of the following accounts is a current liability?Group of answer choicesA. ReservesB. Prepaid expenseC. Trade receivablesD. Trade payables

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Solution

D. Trade payables

Here's why:

A. Reserves: These are not liabilities but rather a part of owner's equity in the balance sheet. They are amounts set aside out of profits and other surpluses to strengthen the financial position of the company.

B. Prepaid expense: This is an asset account. When a company pays for an expense ahead of time, that amount is recorded as a prepaid expense in the asset section of the balance sheet until it is used.

C. Trade receivables: These are also an asset. They represent the amount of money owed to a business by its customers for goods or services delivered or used but not yet paid for.

D. Trade payables: These are a current liability. They represent the amount a company owes for goods or services it has received but not yet paid for.

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