Current Liability
Current liabilities are a company’s debts or obligations that are due within one year, appearing on the company’s balance sheet and include short term debt, accounts payable, accrued liabilities and other similar debts.
Here are a few examples of common current liabilities:
- Accounts payable: These are the amounts the company owes to its suppliers for goods and services purchased on credit but not yet paid for.
- Short-term debt: This includes any debt due within one year, like a short-term bank loan. If a company has long-term debt, the portion of that debt that is due within the next year is also classified as a current liability.
- Accrued liabilities: These are expenses that have been incurred but not yet paid. This could include things like wages payable, taxes payable, and interest payable.
- Unearned Revenue: This is money received by a company for a product or service that it has not yet delivered or performed.
Current liabilities are important to businesses because they are typically paid out of current assets and thus are key indicators of a company’s short-term liquidity. The ability to quickly turn assets into cash to pay off these liabilities is crucial to a business’s ongoing operations and financial stability.
Example of a Current Liability
Let’s consider a hypothetical example of a company’s balance sheet to illustrate what current liabilities might look like:
XYZ Corporation
Balance Sheet as of December 31, 2023
ASSETS
(… further details…)
LIABILITIES AND EQUITY
Current Liabilities
- Accounts Payable: $40,000
- Short-Term Debt: $20,000
- Accrued Expenses (e.g., wages payable, taxes payable): $30,000
- Unearned Revenue: $10,000
- Total Current Liabilities: $100,000
- Long-Term Debt: $200,000
- Deferred Tax Liabilities: $50,000
- Total Non-Current Liabilities: $250,000
Total Liabilities: $350,000
Equity
(… further details…)
In this case, the total current liabilities amount to $100,000, indicating the debts and obligations the company is expected to pay off within the next year. The company would typically use its current assets (not shown in this example, but they would be listed in the “Assets” section of the balance sheet) to meet these obligations.
