What is a Current Liability?
A current liability is a type of debt or obligation that a company is expected to settle within its operating cycle or within one year, whichever is longer.
It represents the company’s short-term financial obligations that are due in the near future. Current liabilities are recorded on a company’s balance sheet and are essential to its financial health and liquidity.
What are liability Accounts in accounting?
Current liabilities example:
Accounts Payable: Amounts owed to suppliers or vendors for goods or services purchased on credit.
Short-term Loans and Lines of Credit: Borrowings due within one year or less.
Accrued Expenses: Expenses incurred but not paid, such as wages, interest, taxes, or utilities.
Income Taxes Payable: Taxes owed to the government based on the company’s taxable income.
Unearned Revenue: Advance customer payments for goods or services that have not been provided.
Dividends Payable: Amounts owed to shareholders as dividends declared but not paid.
Current Portion of Long-term Debt: The long-term debt is due within one year.
Frequently Asked Questions
Is deferred revenue a current liability
Deferred revenue is not always a current liability. It depends on the terms of the sale and when the revenue is earned.
Deferred revenue is revenue that has been received but not yet earned. This can happen when a company sells goods or services on credit or receives a prepayment for goods or services that will be delivered in the future.
If the revenue is earned within one year, deferred revenue is classified as a current liability. However, deferred revenue is classified as a non-current liability if the revenue is earned after one year.
Is unearned revenue a current liability?
Yes, unearned revenue is a current liability. It is money that a company has received from customers in advance for goods or services that have not yet been delivered.
Is accounts payable a current liability?
Yes, accounts payable is a current liability. It is money that a company owes to its suppliers for goods or services that it has purchased.
Is interest payable a current liability?
Yes, interest payable is a current liability. It is money that a company owes to its creditors for interest that has accrued on loans or other forms of debt.
Interest payable is classified as a current liability because it is expected to be paid within one year.
For example, if a company has a loan with an interest rate of 10% and the loan matures in one year, the interest payable would be classified as a current liability.
What are expense accounts in accounting?
Is a current liability an expense?
No, a current liability is not an expense. A current liability is a debt or obligation that a company expects to pay within one year or the company’s operating cycle, whichever is longer. On the other hand, an expense is a cost that is incurred in the course of generating revenue.