What Does Current Liabilities Mean?
A company's debts or obligations that are due within one year. Current liabilities appear on the company's balance sheet and include short term debt, accounts payable, accrued liabilities and other debts.
A company's debts or obligations that are due within one year. Current liabilities appear on the company's balance sheet and include short term debt, accounts payable, accrued liabilities and other debts.
Investopedia explains Current Liabilities
Essentially, these are bills that are due to creditors and suppliers within a short period of time. Normally, companies withdraw or cash current assets in order to pay their current liabilities.
Analysts and creditors will often use the current ratio, (which divides current assets by liabilities), or the quick ratio, (which divides current assets minus inventories by current liabilities), to determine whether a company has the ability to pay off its current liabilities.
Essentially, these are bills that are due to creditors and suppliers within a short period of time. Normally, companies withdraw or cash current assets in order to pay their current liabilities.
Analysts and creditors will often use the current ratio, (which divides current assets by liabilities), or the quick ratio, (which divides current assets minus inventories by current liabilities), to determine whether a company has the ability to pay off its current liabilities.
How to Read a Balance Sheet: Current Liabilities
August 21, 2008 |
Current liabilities are what a company currently owes to its suppliers and creditors. These are short-term debts, all due in less than a year. Paying them off normally requires the company to convert some of its current assets into cash.
Beyond simply being bills to pay, liabilities -- confusing as this might sound -- are also a source of assets. Any money that a company pulls from a line of credit, or postpones paying from its accounts payable, is an asset that can be used to grow the business.
There are five main categories of current liabilities:
- Accounts payable
- Accrued expenses
- Income tax payable
- Short-term notes payable
- Portion of long-term debt payable
Accounts payable
This is the money the company currently owes to its suppliers, partners, and employees -- the basic costs of business that the company hasn't yet paid, for whatever reason. One company's accounts payable is another company's accounts receivable, which is why both terms are similarly structured. A company has the power to push back the due dates on some of its accounts payable. Paying those debts later than expected can often produce a short-term increase in earnings and current assets.
This is the money the company currently owes to its suppliers, partners, and employees -- the basic costs of business that the company hasn't yet paid, for whatever reason. One company's accounts payable is another company's accounts receivable, which is why both terms are similarly structured. A company has the power to push back the due dates on some of its accounts payable. Paying those debts later than expected can often produce a short-term increase in earnings and current assets.
Accrued expenses
The company has racked up these bills, but not yet paid them. These are normally marketing and distribution expenses that are billed on a set schedule and have not yet come due.
The company has racked up these bills, but not yet paid them. These are normally marketing and distribution expenses that are billed on a set schedule and have not yet come due.
Income tax payable
This is a specific type of accrued expense -- the income tax a company accrues over the year, but does not have to pay yet, according to various federal, state and local tax schedules. Although they're subject to withholding, some taxes simply are not accrued by the government over the course of the quarter or the year. Instead, they're paid in lump sums whenever the bill is due.
This is a specific type of accrued expense -- the income tax a company accrues over the year, but does not have to pay yet, according to various federal, state and local tax schedules. Although they're subject to withholding, some taxes simply are not accrued by the government over the course of the quarter or the year. Instead, they're paid in lump sums whenever the bill is due.
Short-term notes payable
The company has drawn off this amount from its line of credit from a bank or other financial institution. It needs to be repaid within the next 12 months.
The company has drawn off this amount from its line of credit from a bank or other financial institution. It needs to be repaid within the next 12 months.
Portion of long-term debt
This represents a chunk of a company's longer-term obligations that may come due in a given year or quarter. That's why it's counted as a current liability, even though it's called "long term."
This represents a chunk of a company's longer-term obligations that may come due in a given year or quarter. That's why it's counted as a current liability, even though it's called "long term."
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