Current liabilities are the obligations that are due within one year of the balance sheet's date and will require a cash payment or will need to be renewed. Knowing which liabilities will have to be paid within one year is important to lenders, financial analysts, owners, and executives of the company. (Current assets include cash and other assets that will turn to cash within one year.) Knowing the liabilities that are due within one year and the amount of assets turning to cash within one year are so important that it makes sense to prepare a classified balance sheet.
The amount of current liabilities is used in two of the most common financial ratios. Working capital is the amount of current assets minus the amount of current liabilities. The current ratio is computed by dividing the amount of current assets by the amount of current liabilities.
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