Current liability

Current liability
Accountancy
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In accounting, current liabilities are often understood as all liabilities of the business that are to be settled in cash within the fiscal year or the operating cycle of a given firm, whichever period is longer. A more complete definition is that current liabilities are obligations that will be settled by current assets or by the creation of new current liabilities.

An operating cycle for a firm is the average time that is required to go from cash to cash in producing revenues.[citation needed]

For example, accounts payable for goods, services or supplies that were purchased for use in the operation of the business and payable within a normal period of time would be current liabilities.

Bonds, mortgages and loans that are payable over a term exceeding one year would be fixed liabilities or long-term liabilities. However, the payments due on the long-term loans in the current fiscal year could be considered current liabilities if the amounts were material.

The proper classification of liabilities provides useful information to investors and other users of the financial statements. It may be regarded as essential for allowing outsiders to consider a true picture of an organization's fiscal health.

One application is in the current ratio, defined as the firm's current assets divided by its current liabilities. A ratio higher than one means that current assets, if they can all be converted to cash, are more than sufficient to pay off current obligations. All other things equal, higher values of this ratio imply that a firm is more easily able to meet its obligations in the coming year.


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Look at other dictionaries:

  • current liability — UK US noun [usually plural] ► FINANCE a payment that a company must make within 12 months: »If a company has current assets of $4 and current liabilities of $2, then its working capital is $2. »You work out a company s liquidity by dividing its… …   Financial and business terms

  • current liability — trumpalaikiai įsipareigojimai statusas T sritis turto vertinimas apibrėžtis Per vienus metus grąžintinos skolos ir vykdytini kiti įsipareigojimai. atitikmenys: angl. current liability šaltinis Tarptautiniai vertinimo standartai (2011) …   Lithuanian dictionary (lietuvių žodynas)

  • current liability — trumpalaikis įsipareigojimas statusas T sritis Gynyba apibrėžtis Įsipareigojimas, kurį: a) įprastai tikimasi įvykdyti per organizacijos finansinius metus arba b) kurį reikia įvykdyti per dvylika mėnesių nuo balanso sudarymo dienos. atitikmenys:… …   Lithuanian dictionary (lietuvių žodynas)

  • current liability — A *short term liability with an anticipated settlement date of less than one year. Examples include *accounts payable and short term bank *loans …   Auditor's dictionary

  • current liability — noun : a liability that arises in the ordinary course of business and must be met in a comparatively short time (as an account payable or an accrual of interest not yet due) …   Useful english dictionary

  • non-current liability — UK US noun [usually plural] ► FINANCE, ACCOUNTING a debt or other payment that does not have to be paid within 12 months → Compare CURRENT LIABILITY(Cf. ↑current liability) …   Financial and business terms

  • Non-Interest-Bearing Current Liability - NIBCL — A category of debt entered on the liabilities side of a balance sheet under current liabilities. While a NIBCL is debt, representing a sum of money that the company owes and must pay within one year, it does not require interest payments. Here… …   Investment dictionary

  • liability — 1) In the broad legal sense, responsibility or obligation. For example, a person is liable to pay his debts, under the law; 2) In accounting, any debt owed by an individual or organization. Current, or short term, liabilities are those to be paid …   Financial and business terms

  • Liability — A financial obligation, or the cash outlay that must be made at a specific time to satisfy the contractual terms of such an obligation. The New York Times Financial Glossary * * * liability li‧a‧bil‧i‧ty [ˌlaɪəˈbɪlti] noun liabilities PLURALFORM …   Financial and business terms

  • current liabilities — An obligation that will be paid in the ordinary course of a business or within one year. A current liability is paid by expending a current asset. The phrase current liability carries with it the idea of a liability that is presently enforceable …   Black's law dictionary

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