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Explain the following terms :1. Liability2. Internal liability3. External liability4. Current liability |
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Answer» 1. Liability : Amount payable by the business for credit purchase of goods/asset or amount payable for borrowed money is known as liability. There are two types of liabilities in the business : (1) Internal liability and (2) External liability. 2. Internal liability : Amount payable by the business to the owner of the business is internal liability. Capital is an internal liability of business. 3. External liability : The amount payable by the business to the third party for credit purchase of goods / assets / services or payable amount for borrowed money is known as external liability. Bank loan, creditors, provident fund, etc. are external liabilities. 4. Current liability : A liability, which is to be paid within one year by the business, is known as current liability. Current liability is treated as short-term liability also. Creditor is treated as current (short¬term) liability. |
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