Current Liabilities: Definition, Examples and Formula

list of current liabilities

The short-term debt liability represents the total sum of debt payments owed within the next year. This short-term debt value is often compared to long-term debt when analyzing a company’s financial position. Well-managed companies attempt to keep accounts payable high enough to cover all existing inventory. A percentage of the sale is charged to the customer to cover the tax obligation (see Figure 12.5). The sales tax rate varies by state and local municipalities but can range anywhere from 1.76% to almost 10% of the gross sales price.

For instance, before deciding to extend credit, banks and other lenders need to know whether a company is getting paid for its accounts receivable on time, as well as whether it covers its payables. As such, they use ratios based on the value of current liabilities, such as Current and Quick Ratios, to analyze a company’s solvency liabilities in accounting and overall financial position. Numerous financial ratios use the value of current liabilities in their calculations to estimate how leveraged a company is and whether it is able to repay its debts. Ideally, a business should have sufficient assets to cover its current liabilities and even have some money left over.

Other Accrued Expenses

Long-term liabilities or debts are the money a company owes to third-party creditors that must be repaid in longer than twelve months. The Current Portion of Long-Term Debt (CPLTD) is the amount of unpaid principal from long-term debt that has accrued during a company’s normal operating period (usually less than twelve months). This amount must be paid in that time period and is, therefore, considered a current liability. The most common is the accounts payable, which arise from a purchase that has not been fully paid off yet, or where the company has recurring credit terms with its suppliers. Other categories include accrued expenses, short-term notes payable, current portion of long-term notes payable, and income tax payable. Common current liabilities include accounts payable, unearned revenues, the current portion of a note payable, and taxes payable.

  • We saw this as we studied inventory, which is often bought “on account” with no paperwork other than a purchase order.
  • Identifiable intangible assets include patents, licenses, and secret formulas.
  • Once the service has been provided or a product has been delivered, the Unearned Revenue is recorded as general revenue on the income statement.
  • Property, Plant, and Equipment (also known as PP&E) capture the company’s tangible fixed assets.

Recorded on the right side of the balance sheet, liabilities include loans, accounts payable, mortgages, deferred revenues, bonds, warranties, and accrued expenses. Current liabilities are critical components of a company’s financial health as they represent the short-term financial obligations the company needs to settle within a year. Your company’s balance sheet will give you the information needed to calculate your current liabilities. It’s an important figure to know because it’s an indicator of how well you can meet short-term obligations due within the next 12 months.

What Is a Liability?

Current liabilities are financial obligations of a business entity that are due and payable within a year. A liability occurs when a company has undergone a transaction that has generated an expectation for a future outflow of cash or other economic resources. Short-term debt is typically the total of debt payments owed within the next year. The amount of short-term debt as compared to long-term debt is important when analyzing a company’s financial health.