Current liability

Current liabilities in accounting refer to the liabilities of a business that are expected to be settled in cash within one fiscal year or the firm's operating cycle, whichever is longer.^[1] These liabilities are typically settled using current assets or by incurring new current liabilities.

Key examples of current liabilities include accounts payable, which are generally due within 30 to 60 days, though in some cases payments may be delayed. Current liabilities also include the portion of long-term loans or other debt obligations that are due within the current fiscal year.^[1] The proper classification of liabilities is essential for providing accurate financial information to investors and stakeholders.

The classification of liabilities also plays a role in determining financial ratios, such as the current ratio—calculated as current assets divided by current liabilities. A higher current ratio indicates that the business has sufficient current assets to cover its obligations over the coming year, suggesting stronger liquidity.^[1] The difference between current assets and current liabilities is referred to as trade working capital.

References

1. Drake, P. P., Financial ratio analysis, p. 3, published on 15 December 2012.