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What is a current liability?

Author:
Harold Averkamp, CPA, MBA

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
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About the Author

Harold Averkamp

For the past 52 years, Harold Averkamp (CPA, MBA) has
worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com.

Learn More About Harold

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