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- Accounting Basics
- What are Accounting Principles
- Accounting Cycle
- Accrual Accounting Basis
- Cash Basis Accounting
- Matching Principle of Accounting
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- Cash Accounting
- What are Accounting Policies?
- Accounting Estimates
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- Cash Accounting vs Accrual Accounting
- Operating Cycle
- Fiscal Year
- Fiscal Year vs Calendar Year | Top Differences | Examples |
- Financial Reporting
- Financial Statements
- Interim Financial Statements
- Consolidated Financial Statement
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- Accounting Scandals
- Quality of Earnings
- IFRS vs US GAAP
- IFRS vs Indian GAAP
- Accounting for Fair Value Hedges
- Debit vs Credit in Accounting
- Double Entry Accounting System
- Journal in Accounting
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- Journal vs Ledger
- What is Trial Balance ? | Examples | Steps | Prepare | Errors
- Reconciliation of Books | Types, Best Practices | Useful Tips
- Petty Cash | Meaning | Template | Accounting | Example
- Debit Note | Debit Notes Accounting & its Top Characteristics
- Credit Note
- Debit Note vs Credit Note | Top 7 Differences (Infographics)
- Balance Sheet
- Balance Sheet
- Accounting Equation
- Assets vs Liabilities | Top 9 Differences (with Infographics)
- Trial Balance vs Balance Sheet | Top 10 Differences You Must Know!
- Balance Sheet vs Consolidated Balance Sheet
- Bank vs Company Balance Sheet
- Commitments and Contingencies
- Management Discussion & Analysis
- Revenue Reserve vs Capital Reserve | Top 7 Differences
- Revenue Reserve
- Capital Reserve
- Capital Receipts vs Revenue Receipts | Top 8 Differences
- Capital Lease vs Operating Lease | Top Differences You Must Know!
- Debt vs Equity Financing | Advantages | Disadvantages | Example
- Internal vs External Financing | Top 7 Differences (Infographics)
- Available for Sale for securities
- Held to Maturity to securities
- Cash and Cash Equivalents | Examples, List & Top Differences
- Cash Equivalents
- Restricted Cash
- 3 Types of Inventory | Raw Material | WIP | Finished Goods
- Current Assets
- FIFO vs LIFO
- First In First Out (FIFO)
- Last in First Out (LIFO)
- LIFO Reserve
- Non-Current Assets
- Accounts Receivables? | Definition, Accounting Examples
- Accounts Receivables Factoring
- Allowance for Doubtful Accounts
- Accrued Revenue
- Liquid Assets
- Quick Assets
- Marketable Securities on the Balance Sheet | Top Examples
- Trading Securities in Balance Sheet
- Prepaid Expenses
- Tangible vs Intangible Assets
- Net Tangible Assets | Calculate Net Tangible Assets Per Share
- Tangible Assets
- Capital Expenditure (Capex)
- Salvage Value
- Residual Value
- Fixed Capital vs Working Capital | Top 8 Differences (Infographics)
- Impariment of Assets
- Negative Goodwill
- Accounts Payable | Days Payable Outstanding | Formula |
- Current Liabilities | List of Current Liabilities on Balance Sheet
- Accrued Liabilities
- Notes Payable
- Revolving Credit Facilities
- Bonds Payable Accounting
- Bad Debt Reserve Allowance
- Deferred Expenses
- Unearned Revenue (Sales)
- Deferred Revenue (Income)
- Current Portion of Long-Term Debt (CPLTD) | Balance Sheet
- Long-Term Debt in Balance Sheet
- Financial Liabilities | Definition, Types, Ratios, Examples
- Long-Term Liabilities
- Accounts Receivable vs Accounts Payable
- Minority Interest
- Accounting for Convertibles
- Accounting for Derivatives
- Financial Lease vs Operating Lease
- Off balance Sheet Financing
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- Shareholders Equity
- Shareholders Equity Statement
- Negative Shareholders Equity
- Par Value of Stock
- Share Capital
- Outstanding Shares (Definition, Formula) | Stocks Outstanding
- Additional Paid-in Capital on Balance Sheet
- Retained Earnings (Formula, Examples) | How to Calculate?
- How to Calculate Net Worth of a Company | Formula | Top Examples
- Owners Equity
- Preferred Shares
- Weighted average Shares average outstanding
- Share Buyback
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- Contingent Shares
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- Stock Dividend
- Cash Dividend
- Preferred Dividends
- Homemade Dividends
- Ex dividend date
- Date of Record of dividends
- Cost of preferred Stock
- Common Stock vs Preferred Stock | Top 8 Differences You Must Know
- Stocks Vs Shares
- Stock Options Vs RSU
- Shareholder Equity vs Net Worth | Top 5 Differences You Must Know!
- Stock vs Option
- Stock vs Mutual Funds
- Income Statement
- Income Statement | Top Examples | Template | Format | Analysis
- Cost of Goods Sold
- Direct Costs
- Indirect Costs
- Non Recurring Items
- EBIT vs EBITDA | Top Differences | Examples | Calculation
- Depreciation – Formula | Types | Most Comprehensive Guide
- EBITDA vs Operating Income
- Straight Line Depreciation Method
- Sum of Year Digits Method of Depreciation
- Declining Balance Method of Depreciation
- Amortization of Intangible Assets
- Unrealized Gains (Losses)
- Non Cash Expense
- Share based compensation
- Restructuring Cost
- Extraordinary Items
- Interest Income
- Double Taxation
- Net Loss
- Net Operating Loss (NOL)
- Tax Shield
- Sundry Expenses
- Interest vs Dividend | Top 9 Differences (with Infographics)
- EBITDA vs Net Income
- EBIT vs Net Income
- EBIT vs Operating Income
- Cost vs Expense
- Accounting Profit vs Economic Profit
- Income Tax vs Payroll Tax
- Tax credits vs Tax deductions
- Gross Income vs Net Income
- Profit vs Revenue
- Revenue vs Earnings
- Revenue vs Income
- Profit vs Income
- Revenue vs Sales
- Capitalization vs Expensing
- Income Statement vs Balance Sheet | Top 5 Differences You Must Know!
- Statement of Comprehensive Income | Items | Colgate Example
- FOB Destination
- Explicit Cost
- Implicit Cost
- Direct cost vs Indirect Cost
- Fixed cost vs Variable cost
- Nopat vs Net Income
- Marginal Costing vs Absorption Costing
- Cash Flow Statement
- Cash flow from Operations | Formula, Calculations & Examples
- Cash Flow from Investing Activities (Formula & Top Examples)
- Cash Flow From Financing Activities | Formula & Calculations
- Cash Flow Analysis
- Fund Flow Statement
- Direct vs Indirect Cash Flow Methods
- Cash flow vs Net Income | Key Differences & Top Examples
- Cash Flow vs Fund Flow | Top 8 Differences (with Infographics)
- Accounting Careers
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- Financial Accounting Careers
- Top Accounting Firms
- Big Four Accounting Firms
- Forensic Accounting
- Cost Accounting
- Financial Accounting
- Accounting vs Engineering
- Finance vs Accounting
- Bookkeeping vs Accounting
- Accounting vs Auditing
- Bookkeepers vs Accountants
- Accounting vs Financial Management
- Cost Accounting vs Financial Accounting
- Cost Accounting vs Management Accounting
- Financial Accounting vs Management Accounting
- Public vs Private Accounting
- Accounting vs CPA
- Controller vs Comptroller
- Accounting Firms in Australia
- Accounting Firms in Canada
- Top Accounting Firms in US
- Accounting Books
What is Current Liabilities on Balance Sheet?
Current Liabilities on balance sheet refer to the debts or obligations that a company owes and is required to settle within one fiscal year or its normal operating cycle, whichever is longer. Such obligations will require the use of current assets like cash, the creation of new current liability or providing of service for settlement. These liabilities are recorded on the Balance Sheet in the order of shortest term to longest term. The definition does not include amounts that are yet to be incurred as per the accrual basis of accounting. For example, salary to be paid to employees for services in the next fiscal year is not yet due since the services have not yet been incurred.
List of Current Liabilities Examples
A list of current liabilities examples are as follows:
#1 – Accounts Payable
Accounts Payable is usually the major component of current liability representing payment due to suppliers within one year for raw materials bought as evidenced by supply invoices. Here is current liabilities example
We note from above that Accounts Payable of Colgate is $1,124 million in 2016 and $1,110 million in 2015.
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#2 – Notes Payable (Short-term)-
Notes Payable are short-term financial obligations evidenced by negotiable instruments like bank borrowings or obligations for equipment purchases. Maybe interest bearing or non-interest bearing
Notes and loans payable for Colgate is $13 million and $4 million in 2016 and 2015, respectively.
#3 – Bank Account Overdrafts
Short term advances made by the banks to offset account overdrafts due to excess funding above the available limit. Also, have a look at revolving credit facility
#4 – Current portion of long-term debt
Current Portion of long-term debt is a part of the long-term debt due within the next one year
#5 – Current Lease payable-
Lease obligations due to the lessor in the short-term
Facebook’s current portion of the capital lease was $312 million and $279 in 2012 and 2011, respectively.
#6 – Accrued Income Taxes or Current tax payable
Income Tax owed to the government but not yet paid
We note from above that Colgate’s accrued income tax was $441 million and $277 million, respectively.
#7 – Accrued Expenses (Liabilities)
Expenses not yet payable to the third party, but already incurred like interest and salary payable. These are accumulated with the passage of time, however, they will get paid when they become due. For example, salaries that the employees have earned but not been paid is reported as accrued salaries.
Facebook’s accrured liabilities is at $441 million and $296 million, respectively.
#8 – Dividend Payable-
Dividends payables are Dividend declared, but yet to be paid to shareholders. Therefore they are recorded as current liabilities on balance sheet.
#9 – Unearned Revenue-
Unearned revenues are advance payments made by customers for future work to be completed in the short term like an advance magazine subscription.
The below example details of unearned subscription revenues for a Media (magazine company)
How to analyze Current Liabilities on Balance Sheet?
Current liabilities on balance sheet impose restrictions on the cash flow of a company and have to be managed prudently to ensure that the company has enough current assets to maintain short-term liquidity. In most cases, companies are required to maintain liabilities for recording payments which are not yet due. Again, companies may want to have liabilities because it lowers their long-term interest obligation.
Some of the important ways you can analyze current liabilities on balance sheet 1) Working Capital and 2) Current Ratios (& Quick Ratio)
#1 – Working Capital
Working capital is the capital which makes fixed assets work in an organization. Working capital can be calculated as follows:
Working Capital formula = Current Assets – Current Liabilities
- A company’s liquidity position can be gauged by analyzing its working capital. Excessive working capital means that level of current assets is much higher as compared to current liabilities on balance sheet. This excess capital blocked up in the assets has an opportunity cost for the firm since it can be invested in other areas for generating higher profits instead of staying idle within working capital.
- On the other extreme, inadequate working capital may pose short-term liquidity issues if the company maintains current assets which are not sufficient enough to meet the liabilities. Consistent liquidity issues may pose problems in the smooth functioning of the firm and affect the credibility of the company in the market.
#2 – Current Ratio & Quick Ratio
Current Ratio= Current Assets/Current Liabilities and
Quick Ratio= (Current Assets- Inventories)/Current Liabilities
- While working capital is an absolute measure, current ratio or working capital ratio can be used to compare companies against peers. The ratio varies across industries and a ratio of 1.5 is usually an acceptable standard. A ratio above 2 or below 1 gives an indication of inadequate working capital management.
- Current Ratio is used in the financial analysis along with quick ratio which is a measure of company’s ability to meet its liabilities using its more liquid assets. A company may boast of a high current ratio. However, it may so happen that most of its current assets are in the form of inventories which are difficult to convert into cash and hence, are less liquid. In case of immediate requirement of funds for meeting liabilities, these less liquid assets would be of no help to the company.
- A quick ratio of less than 1 would signify that the company would be unable to pay back its current liabilities on balance sheet. Thus a quick ratio is also referred to as acid test ratio which speaks of a company’s financial strength.
Why Are Current Liabilities higher in Retail Industry?
For the retail industry, the current ratio is usually less than 1 meaning that current liabilities on balance sheet are more than current assets.
As we note from above, Costco Current Ratio is 0.99, Walmart Current ratio is 0.76 and that of Tesco is 0.714.
- Retailers like Walmart, Costco, and Tesco maintain minimal working capital since they are able to negotiate longer credit period with suppliers but can afford to offer little credit to customers.
- Thus they have much higher accounts payable compared to accounts receivable.
- Such retailers also maintain minimal inventory through efficient supply chain management.
Current Liabilities – Conclusion
Most Balance sheets separate current liabilities from long-term liabilities. This gives an idea of the short-term dues and is an important information for lenders, financial analysts, owners, and executives of the firm to analyze liquidity, working capital management and compare across firms in the industry. Being a part of the working capital, this is also significant for computing free cash flow of a firm.
Although it is more prudent to maintain current ratio and quick ratio of at least 1, the current ratio greater than one provides additional cushion to deal with unforeseen contingencies. Traditional manufacturing facilities maintain current assets at levels double that of current liabilities on balance sheet. However, the increased usage of just in time manufacturing technique in modern manufacturing companies like automobile sector has reduced the current ratio requirement.
This is a guide to what is Current Liabilities. Here we provide the list of current liabilities along with practical examples. We also discuss the best ways to analyze current liabilities including the working capital and the liquidity ratios like current ratio and quick ratios. You may also have a look at these following recommended articles on accounting basics –