What Is Current Liabilities


In accounting, current liabilities would be those debts that a firm owes other companies, as a consequence of its activities during the current year. The amount owing to other firms could be in the form of accounts payable, accrued interest, salaries and wages etc. In business terms, the sum of all payments due from a client to a business is termed as current assets.

In accounting, the current liability means the total of all liabilities outstanding at the end of any one financial year. A firm is said to be “past due” when it is not in a position to meet its obligations, under normal circumstances. It should also be noted that, liabilities do not always refer to actual debts. They can refer to an agreement or contract or to some obligation of certain principal that has not been fully performed.

One must always remember that the liabilities of a firm and the value of its assets are not the same thing. The liabilities outstanding and the current assets are different and should not be compared. Current liabilities can only be derived from the Statement of Liabilities, whereas other measures such as current assets and surplus cannot be derived from the same. For instance, if there are no receivable balances outstanding for a particular period of time, the Accounts ledger will show that the firm did not make any receivable during that period of time. However, if a firm has made a series of credit sales and is now facing a cash flow problem, then its Accounts ledger will record a deficit for that period.

A company can be considered a current liability bound if it does not have sufficient credit to satisfy its liabilities. Under normal circumstances, a firm’s credit standing would allow it to borrow sufficient funds to meet its needs during the course of its operations. However, if a firm finds itself increasingly unable to meet its required payments, then it may be said that it is in a weak liability position.

There are several factors that affect a firm’s ability to meet its obligations. One such factor is the level of financial distress, that it is in. Firms in distress may find themselves unable to meet their obligations due to their inability to generate cash. In such cases, it may be said that the firm is a current liability class. A further analysis of the firms’ assets and liabilities may reveal that it is indeed in a poor liability position.

There are several reasons why a firm may find itself in a weak position to meet its contractual obligations. One reason may be that it is unable to raise sufficient funds to pay its bills. Another reason could be that it has too much credit outstanding. Again, this could indicate an excessive level of credit risk. If you wish to determine the precise position of your company, you need to look at both its cash flow and its credit balance.

The next question that you need to answer is whether your firm is still in its most recent form. In other words, are you still in the initial current liability class? If you are, then you will be experiencing problems meeting your obligations. On the other hand, if you are not yet a current liability, then you are still part of the initial current liability class. With regard to financial instruments, you should know that there are two forms of liability:

As we have seen, there are mainly two forms of liability: physical and financial. What is the current liability for physical firms is determined by the physical assets of your firm. What is current for financial firms is determined by the total assets of your firm plus its credit. What is current for either type of liability is important because it indicates the current condition of the firm. Therefore, before you take decisions based on current financial health, it is important to establish whether you are in an appropriate liability position. After all, the purpose of liability management is to ensure that your firm takes the appropriate actions when you are behind schedule, or even facing bankruptcy.