Current liabilities are the obligations of the company which are expected to get paid within the period of one year and are calculated by adding the value of Trade Payables, Accrued Expenses, Notes Payable, Short Term Loans, Prepaid Revenues and Current Portion of the Long Term Loans.
What is the Current Liabilities Formula?
Current liabilities are those line items of the balance sheet which are liable for the company within a one-year time frame. The calculation for the current liabilities formula is relatively simple. It is a summation of all the current liabilities of the company. The current liabilities of a company are notes payable, accounts payable, accrued expenses, unearned revenue, current portion of long term debt, and other short term debt.
Mathematically, Current Liabilities Formula is represented as,
Explanation of the Current Liabilities Formula
Current liabilities are those liabilities for which the company is liable within a time frame of one year. It is the amount that is generally concerned for a particular business cycle. Current liabilities items are usually those which are attached to the trading securities of a company.
Some most common line items for current liabilities are notes payable, accounts payable, accrued expenses, unearned revenue, current portion of long term debt, and other short term debt.
Examples of Current Liabilities Formula (with Excel Template)
Let’s see some simple to advanced examples of Current Liabilities formula to understand it better.
Current Liabilities Formula – Example #1
A simple example of the current liabilities let us consider an arbitrary company. To calculate the total current liabilities of a company A. We need to assume the values for the different line items for that company, the summation of which will give us the total of current liabilities for that company.
Use the following data for the calculation of Current Liabilities Formula.
Now, let us do the calculation of the Current Liabilities formula based on the given information,
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- Total Current Liabilities = $150+$210+$50+$100+$55+$50
Current Liabilities will be –
- Current Liabilities = $615
The total current liabilities for the company A, in this case, is $615. It implies the company is liable for $615 within one year. It is the amount that is generally concerned for a particular business cycle. Current liabilities items usually are those which are attached to the trading securities of a company.
Current liabilities are always looked upon with respect to the current assets. Current liabilities are used to calculate the current ratio, which is the ratio of current assets and current liabilities. Current is also used in the calculation of working capital, which is the difference between current assets and current liabilities.
Current Liabilities Formula – Example #2
Current liabilities of Reliance Industries. To calculate the total current liabilities of reliance industries, we need the values for the different line items for that company, the summation of which will give us the total of current liabilities for that company. Below is the presentation of different line items of reliance industries for the period March 2018 and total current liability for reliance industries for that period
Use the following data for the calculation of Current Liabilities Formula.
Now, let us do the calculation of the Current Liabilities formula based on the given information,
- Total Current Liabilities=$15,239+$88,675+$85,815+$918
Current Liabilities will be –
Current Liabilities = $190,647
The total current liabilities for the reliance industries for the period are Rs 190,647 cr. It implies the company is liable for Rs 190,647 cr within one year. It is the amount that is generally concerned for a particular business cycle. Current liabilities items are usually those which are attached to the trading securities of a company. Current liabilities are always looked upon with respect to the current assets. The total current assets for reliance industries for the period are Rs 123,912cr.
Generally, the current asset is higher than the current liability. But in some cases like for reliance industries, if it is opposite, it may signal that the company can negotiate better with the creditors of the company. Current liabilities are used to calculate the current ratio, which is the ratio of current assets and current liabilities. Current is also used in the calculation of working capital, which is the difference between current assets and current liabilities. In the case of reliance industries, the working capital is negative.
Current Liabilities Formula – Example #3
Current liabilities of Tata Steel. To calculate the total current liabilities of Tata steel, we need the values for the different line items for that company, the summation of which will give us the total of current liabilities for that company. Below is the presentation of different line items of reliance industries for the period March 2018 and total current liability for reliance industries for that period.
Use the following data for the calculation of Current Liabilities Formula.
Now, let us do the calculation of the Current Liabilities formula based on the given information,
- Total Current Liabilities=$669+$11,242+$12,959+$735
Current Liabilities will be –
Current Liabilities = $25,605
The total current liabilities for the Tata Steel for the period are Rs25,607 cr. It implies the company is liable for Rs25,607 cr within one year. It is the amount that is generally concerned for a particular business cycle. Current liabilities items usually are those which are attached to the trading securities of a company.
Current liabilities are always looked upon with respect to the current assets. The total current assets for Tata steel for the period are Rs 34,643. Current is used in the calculation of working capital, which is the difference between current assets and current liabilities. Tata Steel has a positive working capital, which is common.
Relevance and Uses of Current Liabilities Formula
Current liabilities are always looked upon with respect to the current assets. Current liabilities are used to calculate the current ratio, which is the ratio of current assets and current liabilities. Current liabilities are also used in the calculation of working capital, which is the difference between current assets and current liabilities.
Generally, the current assets are higher than those of the current liabilities of a company. It is common to have a current ratio of 1.5 to 2. Working capital is generally positive values; otherwise, it may signify that the company is running with the help of higher short term debt.
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