Current liabilities are an enterprise’s obligations or debts that are due within a year or within the normal functioning cycle. Moreover, current liabilities are settled by the use of a current asset, either by creating a new current liability or cash. Current liabilities appear on an enterprise’s balance sheet and incorporate accounts payable, accrued liabilities, short-term debt and other similar debts.
The average amount of current liabilities is a vital component of various measures of the short term liquidity of a trading concern, comprising of :
- Current Ratio: It is current assets divided by current liabilities
- Quick ratio: It is computed as current assets minus inventory which is divided by current liabilities
- Cash Ratio: These are the cash and equivalent of cash which is divided by current liabilities
Examples of Current Liabilities
Below mentioned are a few examples of current liabilities :
- Accounts Payable: Accounts payables are nothing but, the money owed to the manufacturers.
- Accrued Expenses: They are the bills which are due to a 3rd party but not payable, for instance, wages payable.
- Accrued Interest: Accrued Interest incorporates all interest that has been accumulated since previously paid.
- Bank account overdrafts (BAO): BAOs are the short term advances that are outlined by the bank for the purpose of overdrafts.
- Notes payable or Bank loans: It is the existing principal part of a long term loan.
- Dividends payable: They are the dividends stated by the enterprise’s BOD (Board of Directors) that are due to be paid to the shareholders.
- Income Taxes payable: Income tax is a kind of tax that is owed to the government that is due to be paid.
- Wages: Wages is the money that is due to be paid to the employees.
The above mentioned is the concept, that is elucidated in detail about ‘What is Current Liabilities?’ for the Commerce students. To know more, stay tuned to BYJU’S.