# What Are Current Liabilities ?

- Last Updated: September 24, 2020

## Current Liabilities Defined

Current liabilities are short-term financial obligations that are due either in one year or within the company’s operating cycle. Current liabilities are different from long-term liabilities, which refer to debts or obligations that are due in more than a year.

## Current Liabilities Put Simple

Current liabilities are generally a result of operating expenses rather than longer term investments and are typically paid for by a company’s current assets.

Having an optimal amount of current assets on hand to cover current liabilities is essential to having a healthy cash flow.

## Current Liabilities On The Balance Sheet

Current liabilities are listed on a company’s balance sheet below its current assets and are calculated as a sum of different accounting heads.

Examples of typical items reported as current liabilities on a company’s balance sheet are:

- Accounts Payable: The amount owed to vendors and suppliers based on their invoices.
- Deferred Revenues: The amount from prepaid revenues, such as gift cards, that is yet to be recorded on the balance sheet.
- Accrued Expenses: The amount that a company owes for interest that may not have been paid.

## Current Liabilities Importance

Current liabilities are used to calculate financial ratios which analyze a company’s ability to meet its short-term financial obligations.

## Current Ratio Formula

The Current Ratio is calculated by dividing current assets with current liabilities and displays the short-term liquidity available to a company to meet debt obligations.

## Working Capital Formula

Working Capital is calculated by subtracting current liabilities from the total current assets available.

## Current Liabilities From A Company Perspective

If current assets exceed current liabilities, then the company has enough current assets to pay off its current liabilities.

However, if a company has too much working capital, some assets are unnecessarily being kept as working capital and are not being invested well to grow the company long term.