Definition:
Current liabilities are obligations that have to be paid off in less than a year like accounts payable, short-term loans like credit lines, and deferred revenue. The most common current liabilities are:
Accounts payable (A/P) – this is the amount the company owes its vendors, typically paid within thirty days.
Accrued expenses – this is a catch-all category that includes everything else the company owes, such as payroll and insurance. A company accrues your pay in this category until they actually pay it out, monthly, weekly, or bi-weekly.
Short-Term Loans – these are lines of credit and short-term revolving loans.
Deferred revenue – this represents money received for products or services that have not yet been delivered, so it’s an obligation. Once the product or service has been delivered, the revenue will be included in the top line of the income statement and it will come off the balance sheet.
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Example:
Amounts shown in thousands (000):
Book Excerpt:
(Excerpts from Financial Intelligence, Chapter 12 – On the Other Side)
Liabilities are the financial obligations a company owes to other entities. Liabilities are always divided into two main categories. Current liabilities are those that have to be paid off in less than a year. Long-term liabilities are those that come due over a longer time frame. Liabilities are usually listed on the balance sheet from shortest-term to longest-term, so the very layout tells you something about what’s due when.
