In terms of accounting practices, current liabilities are understood to be any outstanding indebtedness that is anticipated to be paid in full within the current fiscal year. Payments for these liabilities are made from payables accounts, such as the operations account for a business. Understanding what does and does not constitute a this type of liability makes the process of managing the financial affairs of a company or a household much easier, and is an excellent indicator of the overall financial stability of the organization.
When defining current liabilities, it is important to think in terms of recurring expenses that are generally handled within thirty to ninety days as a matter of normal operations. These examples would include raw materials used in the production process, goods and services that are used in the process of operating the company on a day to day basis, and equipment purchases that will require only a short time to pay in full. Short-term loans that will also be paid off during the current fiscal year may be considered as current liabilities.
Along with items that can be considered current debt, any other items that appear on the balance sheet for the corporation may be considered current liabilities, provided the money owed will be paid off within the year. Because balance sheets normally group short term and long term debt into two different sections, each line item should be evaluated according to the anticipated resolution date and placed on the sheet accordingly.
One exception to the general application of current liabilities has to do with payments that are currently due on long term mortgages, bonds, and business loans. If the payment dates occur in the current fiscal year, it is acceptable to consider the amount of those payments as current liabilities. However, any remaining balance due on those long-term obligations should be recorded elsewhere in the company accounting as long term debt.
