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 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
Current Liabilities Examples
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.
Related Link: What are the current Assets?
Current Liabilities Formula
Current Liabilities= Notes payable + Accounts payable + Accrued expenses + Unearned revenue + Current portion of long term debt + other short term debt
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