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What are Current Liabilities?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 27 September 2014
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In terms of accounting practices, current liabilities are understood to be any outstanding indebtedness that is anticipated to be paid in full within the current fiscal year. Payments for these liabilities are made from payables accounts, such as the operations account for a business. Understanding what does and does not constitute a this type of liability makes the process of managing the financial affairs of a company or a household much easier, and is an excellent indicator of the overall financial stability of the organization.

When defining current liabilities, it is important to think in terms of recurring expenses that are generally handled within thirty to ninety days as a matter of normal operations. These examples would include raw materials used in the production process, goods and services that are used in the process of operating the company on a day to day basis, and equipment purchases that will require only a short time to pay in full. Short-term loans that will also be paid off during the current fiscal year may be considered as current liabilities.

Along with items that can be considered current debt, any other items that appear on the balance sheet for the corporation may be considered current liabilities, provided the money owed will be paid off within the year. Because balance sheets normally group short term and long term debt into two different sections, each line item should be evaluated according to the anticipated resolution date and placed on the sheet accordingly.

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One exception to the general application of current liabilities has to do with payments that are currently due on long term mortgages, bonds, and business loans. If the payment dates occur in the current fiscal year, it is acceptable to consider the amount of those payments as current liabilities. However, any remaining balance due on those long-term obligations should be recorded elsewhere in the company accounting as long term debt.

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yunie
Post 4

As a rule of thumb, current: <1 year. non-current (previously known as LT liabilities):1 year and above.

anon196047
Post 3

long term liabilities are now called non-current liabilities, as a way to standardise accounting terms with non-current assets.

aarons
Post 2

When you're researching a company's financial assets, it can be helpfult to know that current liabilities are listed on the balance sheet first in the liabilities section. This section comes after the fixed assets section. They are used to help determine liquidity in the "current ratio," which is current assets/ current liabilities. This gives a sort of quick and dirty idea of whether or not the company is solvent by showing if they can meet their immediate obligations.

subway11
Post 1

Current assets are things that you own that have value such as a bank account,a car, stocks and bonds and even your home.

In order to calculate current liabilities you have to add up all of your fixed and variable expenses.

An example of a fixed expense would be a mortgage or a car payment because the amount is the same over time. These are also considered notes payable current liabilities because they are loans.

There are also variable expenses like school tuition or insurance premiums that tend to go up every year. Once you have determined what your assets are as well as what your liabilities you will be able to calculate your net worth.

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