liabilities, debtors and creditors

Question 1

what is a liability?

Answer 1

an amount of money owed by an enterprise.

Question 2

what are the 2 type of liabilities that an enterprise may have?

Answer 2

current and long-term

Question 3

what may the enterprise owe money to?

Answer 3

it’s creditors

Question 4

what may the enterprise be owned money by?

Answer 4

it’s debtors

Question 5

what are current liabilities also known as?

Answer 5

short-term debts

Question 6

what are the current liabilities?

Answer 6

The money owed must be paid back within one year

Question 7

what are the 3 examples that can be included in current liabilities?

Answer 7

• a bank overdraft
• short-term loans
• money owned to suppliers for goods received

Question 8

what is a bank overdraft?

Answer 8

amount overspent on a current bank account

Question 9

what are short-term loans?

Answer 9

less than a year

Question 10

how do you calculate current liabilities?

Answer 10

by adding together the value of the enterprise’s current (short-term) liabilities.

Question 11

what are the long-term liabilities?

Answer 11

debts that are paid back over a long period of time

Question 12

long-term liabilities:
bank loans with a repayment period of what?

Answer 12

more than one year

Question 13

long-term liabilities:
why are mortgages taken out?

Answer 13

to finance the purchase of business premises, often paid back over 20 years

Question 14

long-term liabilities:
the money originally invested in what?

Answer 14

the money originally invested in the enterprise of the owner

Question 15

how do you calculate the long-term liabilities?

Answer 15

can be calculated by adding together the value of all the enterprise’s long-term liabilities

Question 16

debtors and creditors:
what may the enterprise own money to?

Answer 16

its creditors (accounts payable) - its suppliers.

Question 17

debtors and creditors:
what may an enterprise be owned money by?

Answer 17

debtors (accounts receivable) - its customers.

Question 18

debtors:
why is it important for the enterprise to collect all the money it is owed from
it’s debtors?

Answer 18

because it needs cash to pay its creditors.

Question 19

debtors:
what happens if debtors don’t pay their debts?

Answer 19

the enterprise will suffer cash flow problems

Question 20

debtors:
why would an enterprise establish a credit control system?

Answer 20

to ensure that debtors pay their bills on time

Question 21

creditors:
what can creditors include?

Answer 21

businesses who supply goods to the enterprise

Question 22

creditors:
what will creditors purchase?

Answer 22

services such as electricity

Question 23

creditors:
what may creditors pay back?

Answer 23

business loans

Question 24

creditors:
If an enterprise does not pay its creditors, what could the suppliers refuse to do?

Answer 24

to supply spare parts or other goods

Question 25

creditors:
If an enterprise does not pay its creditors, what can be cut off?

Answer 25

services

Question 26

creditors:
If an enterprise does not pay its creditors, what can be difficult to obtain?

Answer 26

future business loans

Question 27

creditors:
If an enterprise does not pay its creditors, what could an enterprise declare as?

Answer 27

bankrupt