What makes current liabilities different from long-term liabilities? Provide an example of a current liability and how it might be used to finance current assets.

Current liabilities (short-term liabilities) are liabilities which are due and payable in one year. Long-term liabilities (non-current liabilities) are liabilities due after a year or more.

Current liabilities factor into the requirements for working capital. Again, working capital is the money needed to keep the lights on and to operate the company's regular operations. Without it to keep afloat or downsize, maybe even near, the company must borrow more capital. Long-term liabilities are also considered an expenditure of money into the company's long-term growth plans. Purchasing a new large piece of machinery is a cost that will take time to pay off but with higher production levels, it can generate a return on investment (ROI), which helps the business expand. Also a pension is viewed as an investment in the company's staff, building loyalty, reducing turnover and strengthening the corporate culture.

In general, current liabilities are accounted for by current assets. Some examples include accounts payable, which are vendor amounts, short-term bank loans, employee advantages, and income taxes accrued. Long-term debt includes: leases, bank notes, mortgage loans, and bonds payable. Such long-term liability examples include: commitments for pension insurance, post-employment benefits, and deferred taxes.

Accounts payable is one of the current liabilities which can be used to finance current assets. Accounts payables represent the cumulative sum owed for invoices which have yet to be charged to suppliers or vendors. Vendors usually provide a customer with terms of 15, 30, or 45 days to pay, meaning the buyer receives the supplies but may pay them at a later date. These invoices are recorded in accounts payable and serve as a vendor's short-term loan. The business can produce income from the selling of supplies and handle its cash needs more efficiently by giving a company time to pay off an invoice. Ideally, vendors would like shorter terms to support their cash needs, so that they are paid earlier rather than later. Suppliers will go so far as to provide incentives to businesses to pay on time or early. For instance, a supplier could give terms of 3%, 30, net 31, which means that a business receives a 3% discount for paying 30 days or earlier and owes the full sum 31 days or later. In comparison, businesses may use payables from accounts as a way to increase their cash. As a way to improve their cash flow in the short term, businesses can try to extend the terms or the time taken to pay off the payables to their suppliers.