Frequently Asked Questions

If a company has no current liabilities, where would you expect to find the notes payable?

The notes payable would be classified as non-current. It is important to realize that not all companies have current liabilities, but they must have at least one non-current liability by virtue of the fact that their operating cycle will always be longer than 12 months.

If a company has any current liabilities, where would you expect to find the accounts payable?

The accounts payable would also be classified as non-current. It is important to realize that not all companies have current liabilities, but they must have at least one non-current liability by virtue of their operating cycle will always be longer than 12 months.

If a company has no current liabilities, where would you expect to find the accrued expenses?

The accrued expenses will be classified as current liabilities because at some point they must be paid in order for the business to continue its operations. While not all companies have any current liabilities, they must have at least one by virtue of their operating cycle must always be longer than 12 months. They may have more than one and they may also have less than one if the company is reporting an operating loss.

If a company has any current liabilities, where would you expect to find the unearned revenue?

The unearned revenue will also be classified as current liabilities because at some point the money must be collected in order for the business to continue its operations. While not all companies will have current liabilities, they do have to have at least one by virtue of their operating cycle must always be longer than 12 months. They may have more than one and they may also have less than one if the company is reporting an operating loss.

How would you classify a liability that has a stated maturity date and is not cancelable by the company providing it?

There are two parts to this question. First, how do we determine if a liability can be canceled? If the agreement contains language such as “the party agreeing to provide financing must be capable of honoring the agreement.”, then it cannot be canceled by the company who is providing the financing. The second part of this question is what happens to a liability once its stated maturity date has passed? It will either revert to current or become non-current based on whether the business still has an outstanding obligation to honor that debt.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website, view his author profile on Amazon, or check out his speaker profile on the CFA Institute website.