Definition of Current Liability
A current liability is:
- An obligation that will be due within one year of the date of the company’s balance sheet, and
- Will require the use of a current asset or will create another current liability
However, if a company’s normal operating cycle is longer than one year, current liabilities are the obligations that will be due within the operating cycle.
Current liabilities are usually reported as a separate section of a company’s balance sheet. This allows readers to subtract their total from the company’s total amount of current assets in order to determine a company’s working capital. (Dividing current assets by the current liabilities is the company’s current ratio.)
Examples of Current Liabilities
The following are common examples of current liabilities:
- Accounts payable or trade payables
- Notes payable that will be due within one year
- The principal portion of a long-term loan that must be paid within one year
- Wages payable
- Income taxes payable
- Interest payable
- Other accrued expenses payable
- Deferred revenues and customer deposits
