Current Liabilities

A liability is an obligation to pay a third party incurred by a business as part of its trading operations. For example, when a business buys services from a supplier on credit terms, the business has a liability to the supplier to pay for the services.

Liabilities are classified as current liabilities when the business expects to settle them within its normal operating cycle or within twelve months of the balance sheet date.

The operating cycle is the time between purchasing inventory, and receiving the cash from the sale of the inventory. the operating cycle is usually less than twelve months or not identifiable, so for most businesses, a current liability is one which is due within twelve months.

Examples of Current Liabilities

Examples of balance sheet current liabilities include the following:

  • Short term notes payable
  • Accounts payable
  • Accrued expenses
  • Deferred revenue
  • Dividends payable
  • Interest payable
  • Short term loans
  • Taxes payable

It is important to correctly identify operating current liabilities, as they form an important component of the calculation of working capital, and the current and quick liquidity ratios.

For further information on current liabilities see the Wikipedia definition.

Learn a new bookkeeping term

Random bookkeeping terms for you to discover.

Link to this page

Click in the box to copy and paste the current liabilities definition link to your site.

Return to the Glossary

Last modified April 20th, 2015 by Michael Brown

About the Author

Chartered accountant Michael Brown is the founder and CEO of Double Entry Bookkeeping. He has worked as an accountant and consultant for more than 25 years in all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a BSc from Loughborough University.

You May Also Like