What is a current liability?

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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