JAIIB Exam Study Material: What are 'Current Liabilities'
Current liabilities are a company's debts or obligations that are due within one year, appearing on the company's balance sheet and include short term debt, accounts payable, accrued liabilities and other debts.
Essentially, these are bills that are due to creditors and suppliers within a short period of time. Normally, companies withdraw or cash current assets in order to pay their current liabilities.
Analysts and creditors will often use the current ratio, (which divides current assets by liabilities), or the quick ratio, (which divides current assets minus inventories by current liabilities), to determine whether a company has the ability to pay off its current liabilities.
In the course of conducting its operations, a company may obtain short-term loans or acquire input materials and services from its vendors and pay for them at a later date. Because the company has to honor these obligations in the future as a result of past transactions or events, this gives rise to corresponding liabilities. Liabilities due on demand or within one year are classified as current liabilities on a company's balance sheet.
