Which item is classified as a current liability on the balance sheet?

• A. Accounts receivable
• B. Cash
• C. Inventory
• D. Accrued expenses

Answer: (D)

Current liabilities are obligations the company expects to settle within one year. Accrued expenses fit this, because they are costs that have been incurred but not yet paid, such as wages earned by employees but not yet paid or utilities used but not billed. Since these will require a cash outflow in the near term, they appear on the balance sheet as current liabilities. In contrast, cash, accounts receivable, and inventory are all assets: cash is money the company owns, accounts receivable are amounts owed to the company by customers, and inventory is goods the company expects to sell. These are not liabilities, so they aren’t classified as current liabilities. Therefore, accrued expenses is the item that is a current liability.