One of the major purposes while learning accounting basics is to recognize accounting definitions & terms & explore such items in depth using practical models. In the following article we’ll try to explore the theory of current liability as well as its image in the financial reports.
The Definition - Current Liability
A current liability is a liability that is due inside a very short period of time, normally 1 year or less than that. This is paid by cash or any other present asset.
There may be a number of main aspects to take into account from the above definition:
Firstly, present debt is liability, i.e. the sum which a business owes to creditors or financiers, hence it must be paid back.
Secondly, such a liability is due inside a short period of time, a year or less which means that present debt must be paid inside a definite period of time that is short.
Thirdly, such a liability must be paid by cash or any similar present asset, meaning that current asset & current liability are closely associated.
Cases and Replication in the Financial Terms
In order to better understand this definition which is one of the basic concepts in the field of accounting, the cases of current debt could be:
Accrued salaries which are the amounts due to the employees & workers for the work completed.
Accounts payable which are the amounts due to the dealers for the raw materials, goods, services, inventory delivered.
Short-term loans which are the loans that are due inside 1 year or less.
Additional added liabilities & present debt.
Seeing the relationship of the financial statements with current liability, note that such an item is replicated on the liability side of balance sheet & the whole quantity of current debt must be calculated and replicated inside the balance sheet.
Such an amount is crucial since it specified how much a particular business will need to repay to creditors inside 1 year & whether it’s able to satisfy its financial duties. Also the worth of the current liabilities will be matched with the worth of present assets so as to investigate if the business will be having enough present assets that will be able to cover current debt.
There may be a number of main aspects to take into account from the above definition:
Firstly, present debt is liability, i.e. the sum which a business owes to creditors or financiers, hence it must be paid back.
Secondly, such a liability is due inside a short period of time, a year or less which means that present debt must be paid inside a definite period of time that is short.
Thirdly, such a liability must be paid by cash or any similar present asset, meaning that current asset & current liability are closely associated.
Cases and Replication in the Financial Terms
In order to better understand this definition which is one of the basic concepts in the field of accounting, the cases of current debt could be:
Accrued salaries which are the amounts due to the employees & workers for the work completed.
Accounts payable which are the amounts due to the dealers for the raw materials, goods, services, inventory delivered.
Short-term loans which are the loans that are due inside 1 year or less.
Additional added liabilities & present debt.
Seeing the relationship of the financial statements with current liability, note that such an item is replicated on the liability side of balance sheet & the whole quantity of current debt must be calculated and replicated inside the balance sheet.
Such an amount is crucial since it specified how much a particular business will need to repay to creditors inside 1 year & whether it’s able to satisfy its financial duties. Also the worth of the current liabilities will be matched with the worth of present assets so as to investigate if the business will be having enough present assets that will be able to cover current debt.
