Current Liabilities Defined
Current liabilities are short-term financial obligations that are due either in one year or within the company’s operating cycle. Current liabilities are different from long-term liabilities, which refer to debts or obligations that are due in more than a year.
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Current Liabilities Put Simple
Current Liabilities on the Balance Sheet
Examples of typical items reported as current liabilities on a company’s balance sheet are:
- Accounts Payable: The amount owed to vendors and suppliers based on their invoices.
- Deferred Revenues: The amount from prepaid revenues, such as gift cards, that is yet to be recorded on the balance sheet.
- Accrued Expenses: The amount that a company owes for interest that may not have been paid.
Current Liabilities Importance
Current liabilities are used to calculate financial ratios which analyze a company’s ability to meet its short-term financial obligations.
Current Ratio Formula
Working Capital Formula
Working Capital is calculated by subtracting current liabilities from the total current assets available.
Current Liabilities From a Company Perspective
If current assets exceed current liabilities, then the company has enough current assets to pay off its current liabilities.
However, if a company has too much working capital, some assets are unnecessarily being kept as working capital and are not being invested well to grow the company long term.
What Are Current Liabilities FAQs
About the Author
True Tamplin, BSc, CEPF®
True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.
True contributes to his own finance dictionary, 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.