Examples of Current Liabilities
Current Liabilities refer to the obligations of the company that needs to be settled within a given fiscal year. In most cases, these obligations are reported on the balance sheet in order of its liquidity. Below are some of the top examples of Current Liabilities –
#1 – Accounts Payable
Accounts payable are the obligations of the company towards its suppliers/vendors. In the normal course of business the company purchases raw materials or other types of goods on credit then the company is obliged to pay the amount of such raw material of goods to the supplier within a stipulated time.
Zinnia went to a mobile shop to buy an android phone worth $600 but carries only $400. So she pays $400 at the time of purchase and for the remaining amount of $200, the vendor allows her a credit period of 30 days. During that period, there will be a balance of $200 listed as accounts receivable in the books of the vendor. When she pays the amount the cash and bank will be debited with $200 and the accounts the receivable account will be cleared. If in 30 days also Zinnia fails to pay off its debts then the accounts receivable will still hold $200 as the amount owed by Zinnia. But the sales will always be of $600. This is the reason why account receivables are shown differently from sales.
There is always a risk of bad debts in case of sales made on credit so in that case after the expiration of credit period, the vendor should start reminding the customer to pay off their dues or can contact collecting agencies to make their dues recovered.
#2 – Notes Payable
There is dealing between the two companies, Alpha International Ltd and Beta International Ltd where Alpha International Ltd sells office equipment to Beta International Ltd amounting to $150,000, with the condition that the payment will get due within a period of 30 days. Now the Beta International Ltd was unable to make the payment even after the 60 days so both of the parties mutually decided that for the payment due the Beta International Ltd will issue the notes payable in favor of the Alpha International Ltd for the payment of principal amount of $150,000 within next 5 months along with the interest at the rate of 9% per annum.
As per the terms and conditions, the principal amount is to be paid in 5 installments of $30,000 each along with the interest due at the rate of 9% at the end of each of the months.
Thus in the present case, Beta International Ltd will be recording the entry of the notes payable on the balance sheet. This will be shown under the head current liability as the amount is due to the Alpha International Ltd within the period of one year. The amount due will be the principal amount due plus the interest agreed upon. The same amount Alpha International Ltd will show as the notes receivable on its balance sheet.
#3 – Income Tax Payable
Income tax payable is the current tax obligation payable to the government by the company. Income tax is calculated at the rate specified in the income tax act and this percentage will be levied on the net profit calculated as per the norms of the income tax act.
Suppose Fin earns a salary income of $50000 per year and his income is taxable at a federal tax rate of 20%. On his salary income, suppose Fin’s employer deducted $7000 as federal taxes. Now when he files his annual income tax return his net tax payable will come $3000. Suppose if Fin’s employer has not deducted any taxes then at the end income tax payable would come entire $10000.
#4 – Withholding Tax Payable
The taxes deducted from an employee or other contractor has to be deposited to the Government. Any short amount deposited or amount deducted yet to be deposited will come under Withholding tax payable.
Suppose Fin is running a company and he pays the total salary of $50000 to employees in a month in which he deducted tax of $7000. Moreover, he also paid $20000 to a contractor in which he deducted tax of $4000 as a tax. Now suppose Fin deposited $10000 to Government of this deducted tax. The net withholding tax still payable to the government is$1000. Suppose if Fin has not deposited any amount to Government then net withholding tax payable would be $11000.
#5 – Accrued Expenses
Accrued expenses are those expenses that have been already incurred in the past but are not yet paid.
Let’s take the example of Happy Inc. who has taken a loan for the investment in the business where the interest of $5,000 on such loan is paid monthly but the interest of each month is needed to be paid on the 2nd day of the following month. Say, for the month of March the interest is to be paid on the 2nd April. So at the end of the march, the interest of $5,000 is recorded in the balance sheet as interest payable in the Accrued liability part of current liabilities. Similarly, salary outstanding for the month of March is due at the end of the month but is paid to the employees in the month of April. So the salary due for the month of March is the accrued expense at the end of March month.
#6 – Unearned Revenue
Unearned Revenue is the advance payments received from the customers while receiving their orders for the supply or delivery of goods and services in the future. In unearned revenue, there is no direct borrowing from the customer.
California Laptop Company has received an order for the Laptop worth $55,000 from the trading company situated in France on 25th December 2019. As per the agreement, the California laptop company is needed to supply the laptops to the trading company of France on 25th Jan 2020. The trading company has paid an advance of $15,000 at the time of agreement and the remaining is required to be paid within 15 days of the completion of an order.
Now if the California Laptop company closes its books on 31st December then on 31st December the amount of $15,000 will be shown as unearned revenue since the goods are not delivered till the date of closure the books, so this amount is part of current liability till the completion of an order. When the order is delivered, the current liability of $15,000 will get eliminated and on the financial statement of the following year i.e. in the year ending on 31st December 2020, the amount of $55,000 will be recorded as revenue.
#7 – Other Short Term Liabilities
Any other obligation which has to be paid by the company within a year from the balance sheet date are treated as other short term liabilities. The example of other short term liability can be the current portion of long term debt i.e. the amount of loan payable within a year from the balance sheet date.
For example, a company has taken a loan worth $5,000 on 31st March 2018 whose principal is to be repaid in the five equal annual installments and each installment is payable on 31st October every year. Now on the closure of the books as on 31st March 2018, the amount of $1000 which is required to be paid on 31st October 2018 is shown as a current portion of long term debt in the current liability and the remaining $4,000 will be shown as long term debt.
Walmart Inc Current Liabilities Examples
Walmart Inc has Short term borrowings of $ 5,257 Mn, Trade Payables of $ 46,092 Mn, Accrued liabilities of $ 22,122 Mn, Long term debt getting due in 12 months of $ 3,738 Mn and lease obligations getting due in 12 months of $667 Mn as on 31st Dec 2018.
From this we can do the calculation of the total Current liabilities as follows,
Total Current Liabilities Calculation = $ 5,257 Mn +$ 46,092 Mn + $ 22,122 Mn + $ 3,738 Mn + $ 667 Mn = $ 77,876 Mn.
Thus, Walmart Inc has Current Liabilities Worth $ 77,876 Million as of 31st March 2018.
Amazon.com Current Liabilities Examples
In this example, Amazon.com, Inc has Trade payables of $ 25,309 Mn, Accrued liabilities of $ 13,739 Mn, Unearned Revenues of $ 4,768 Mn, as on 31st Dec 2018.
From this we can do the calculation of the total Current liabilities as follows,
Total Current Liabilities Calculation = $ 25,309 Mn +$ 13,739 Mn + $ 4,768 Mn = $ 43,816 Mn.
Thus, Amazon.com, Inc has Current Liabilities Worth $ 43,816 Million as of 31st March 2018.
This is a guide to Current Liabilities Examples. Here we provide you with top examples of current liabilities along with explanation including practical case studies of Walmart and Amazon. You can learn more about accounting from following articles –
- Examples of Journal Entries
- Example of LIFO Liquidation
- Overview of Journal Entry for Accounts Receivable
- Typical Accounts Payable Journal Entries
- Liabilities in Accounting Examples
- Accrued Expenses Meaning
- Accrued Interest
- What is Accrued Interest?
- Learn Basic Accounting
- What are Current Assets?
- Mark to Market Accounting