|
|
Current liabilities are obligations arising in the normal course of business that are expected to be paid or performed within one year or within the normal operating cycle of a business, whichever is longer. It refers to the amount company currently owes to its suppliers and creditors. These are short-term debts, all due in less than a year. Current liabilities appear on the right side of company's balance sheet and include short-term debt, accounts payable, deferred dividends, trade credit, unpaid taxes accrued liabilities, and other debts. Normally, companies withdraw cash or liquidate current assets to pay their current liabilities and for the very same reason, Analysts and creditors often use the current ratio, which divides current assets by current liabilities, to discern whether a company has the ability to pay off its current liabilities.
There are six main categories of current liabilities:
Accounts payable
Accrued expenses
Income tax payable
Short-term notes payable
Current Portion of long-term debt
Unearned Income
Accounts payable
This is the money the company currently owes to its suppliers, partners, and employees -- the basic costs of business that the company hasn't yet paid, for whatever reason. Paying those debts later than expected can often produce a short-term increase in earnings and current assets.
Accrued expenses
These are the expenses that company has incurred but not yet paid them. It includes expenses such as accrued salaries, wages, interest, marketing and distribution expenses etc. These and such other expenses are normally billed on a set schedule and have not yet come due as of the end of the year. It also includes expenses for which the services have been provided but the bill is not yet due.
Income tax payable
This is a specific type of accrued expense -- the income tax a company accrues over the year, but does not have to pay yet, according to various federal, state and local tax schedules. Although they're subject to withholding, some taxes simply are not accrued by the government over the course of the quarter or the year. Instead, they're paid in lump sums whenever the bill is due.
Short-term notes payable
The company has drawn off this amount from its line of credit from a bank or other financial institution. It needs to be repaid within the next 12 months. Portion of long-term debt This represents a chunk of a company's longer-term obligations that may come due in a given year or quarter. That's why it's counted as a current liability, even though it's called "long term."
Unearned Income
This reports amount received in advance of providing goods or services. When the goods or services are provided, this account balance is decreased and a revenue account is increased.