current liabilities

(noun)

All liabilities of the business that are to be settled in cash within the fiscal year or the operating cycle of a given firm, whichever period is longer.

Related Terms

Examples of current liabilities in the following topics:

  • Calculating Working Capital

    • For example, cash is a current asset, but so are most accounts receivable.
    • Current liabilities (CL) is an accounting term similar to CA: CL is the amount of liabilities that are expected to be settled in cash within a year (or the operating cycle of the company).
    • WC, though, does not guarantee that a company can pay off all short-term expenses or liabilities.
    • They also have $50 of current liabilities.
    • Not all current assets can be used to pay off expenses of debts.

  • Current Ratio

    • It compares a firm's current assets to its current liabilities.
    • Current asset is an asset on the balance sheet that can either be converted to cash or used to pay current liabilities within 12 months.
    • Current liabilities are often understood as all liabilities of the business that are to be settled in cash within the fiscal year or the operating cycle of a given firm, whichever period is longer.
    • If current liabilities exceed current assets (the current ratio is below 1), then the company may have problems meeting its short-term obligations.
    • A high current ratio means that the company is more likely to meet its liabilities which fall due in the next 12 months.

  • Liquidity

    • The current ratio, which is the simplest measure and is calculated by dividing the total current assets by the total current liabilities.
    • The quick ratio, which is calculated by deducting inventories and prepayments from current assets and then dividing by current liabilities--this gives a measure of the ability to meet current liabilities from assets that can be readily sold.
    • The operating cash flow ratio can be calculated by dividing the operating cash flow by current liabilities.
    • It shows the number of times short-term liabilities are covered by cash.
    • The formula is the following: LR = liquid assets / short-term liabilities.

  • Calculating Expected Value

    • Net working capital is calculated as current assets minus current liabilities.
    • If current assets are less than current liabilities, an entity has a working capital deficiency, also called a "working capital deficit. "
    • Current assets and current liabilities include three accounts which are of special importance.
    • An increase in working capital indicates that the business has either increased current assets (that it has increased its receivables, or other current assets) or has decreased current liabilities, for example, has paid off some short-term creditors.
    • Current Assets - Current liabilities (excluding deferred tax assets/liabilities, excess cash, surplus assets, and/or deposit balances).

  • Working Capital

    • Net working capital is calculated as current assets minus current liabilities.
    • If current assets are less than current liabilities, an entity has a working capital deficiency, also called a working capital deficit.
    • An increase in working capital indicates that the business has either increased current assets (that it has increased its receivables, or other current assets) or has decreased current liabilities - for example has paid off some short-term creditors.
    • Current assets and current liabilities include three accounts which are of special importance.
    • These accounts represent the areas of the business where managers have the most direct impact: accounts receivable (current asset), inventories (current assets), and accounts payable (current liability).

  • Temporal Classification

    • Cash, receivables, and liabilities on the Balance Sheet are re-measured into U.S. dollars using the current exchange rate.
    • Most accounting balance sheets classify a company's assets and liabilities into distinct groups such as current assets property, plant, equipment, current liabilities, etc.
    • Cash, receivables, and liabilities are re-measured into U.S. dollars using the current exchange rate.
    • Assets and liabilities valued at current costs use the current exchange rate and those that use historical exchange rates are valued at historical costs.
    • The gains and losses that result from translation are placed directly into the current consolidated income.

  • Preparation of the Balance Sheet

    • Inventory may be the largest current asset.
    • On a balance sheet, current assets are totaled and this total is shown as the line item called "total current assets. "
    • They are distinguished from current assets by their longevity.
    • These are debts owed by the business.There are two types of liabilities: current liabilities and long-term liabilities.
    • The current liabilities of most small businesses include accounts payable, notes payable to banks, and accrued payroll taxes.

  • Defining the Balance Sheet

    • The balance sheet, sometimes called the statement of financial position, lists the company's assets, liabilities,and stockholders' equity (including dollar amounts) as of a specific moment in time.
    • The balance sheet is a formal document that follows a standard accounting format showing the same categories of assets and liabilities regardless of the size or nature of the business.
    • • Current assets (short-term): items that are convertible into cash within one year
    • Similarly, liabilities are listed in the order of their priority for payment.
    • In financial reporting, the terms "current" and "non-current" are synonymous with the terms "short-term" and "long-term," respectively, so they are used interchangeably.

  • Long-Term Approach

    • However, the short-term nature of working capital, as well as the classification of assets and liabilities into current and non-current, has recently come under scrutiny.
    • The 'current' and 'non-current' classification can also be criticized for its assumption that working capital items are closely related to current operations, and that long-term assets and liabilities are related to the long-term planning functions of the organization.
    • However, the amount of working capital is not necessarily a good indicator of the ability of the firm to pay current liabilities as they come due.
    • Furthermore, nonliquid current assets become liquid sequentially - that is, from raw material inventories to work in process to finished inventories to accounts receivable to cash - but current liabilities become due simultaneously or at dates that are unrelated to each other.
    • It is also argued that the classification of assets and liabilities as 'current' and 'non-current' as a method of presenting the solvency of the firm is less important today than in the past for a number of reasons.

  • Balance Sheets

    • A standard balance sheet has three parts: assets, liabilities, and ownership equity; Asset = Liabilities + Equity.
    • Assets are followed by the liabilities.
    • According to the accounting equation, net worth must equal assets minus liabilities.
    • A personal balance sheet lists current assets, such as cash in checking accounts and savings accounts; long-term assets, such as common stock and real estate; current liabilities, such as loan debt and mortgage debt due; or long-term liabilities, such as mortgage and other loan debt.
    • A small business balance sheet lists current assets, such as cash, accounts receivable and inventory; fixed assets, such as land, buildings, and equipment; intangible assets, such as patents; and liabilities, such as accounts payable, accrued expenses, and long-term debt.