Reporting Current Liabilities

Current liabilities are reported first in the liability section of the balance sheet because they have first claim on company assets.

Learning Objective

Explain how current liabilities are shown on the financial statements

Key Points

Current liabilities are typically due and paid for during the current accounting period or within a one year period. They are paid off with assets or other current liabilities.
For many companies, accounts payable is the first balance sheet account listed in the current liabilities section. Accounts payable includes goods, services, or supplies that were purchased with credit and for use in the operation of the business and payable within a one year period.
Long-term liabilities are listed in a separate section after current debt; however, for all long-term liabilities, any amounts due in the current fiscal year are reported under the current liability section.

Terms

bond
Evidence of a long-term debt, by which the bond issuer (the borrower) is obliged to pay interest when due, and repay the principal at maturity, as specified on the face of the bond certificate. The rights of the holder are specified in the bond indenture, which contains the legal terms and conditions under which the bond was issued. Bonds are available in two forms: registered bonds and bearer bonds.
audit
An independent review and examination of records and activities to assess the adequacy of system controls, to ensure compliance with established policies and operational procedures, and to recommend necessary changes in controls, policies, or procedures

Full Text

Current Liabilities in the Balance Sheet

The balance sheet, or statement of financial position, is a snapshot of a company's assets, liabilities, and owner's equity on a given date. The presentation of the balance sheet should support the accounting equation of assets = liabilities + owner's equity. Liabilities are disclosed in a separate section that distinguishes between short-term and long-term liabilities. Short-term, or current liabilities, are listed first in the liability section of the statement because they have first claim on company assets. Current liabilities are typically due and paid for during the current accounting period or within a one year period. They are paid off with assets or other current liabilities .

Most current liabilities have a claim on cash or other assets.

Current liabilities is the first section reported under liabilities on the balance sheet.

Accounts Payable

For many companies, accounts payable is the first balance sheet account listed in the current liabilities section. For example, accounts payable for goods, services, or supplies that were purchased with credit and for use in the operation of the business and payable within a one-year period would be current liabilities. Accounts payable are typically due within 30 days. Amounts listed on a balance sheet as accounts payable represent all bills payable to vendors of a company, whether or not the bills are more or less than 30 days old. Therefore, late payments are not disclosed on the balance sheet for accounts payable. An aging schedule showing the amount of time certain amounts are past due may be presented in the notes to audited financial statements; however, this is not common accounting practice.

Other Liabilities

In addition to current liabilities, long-term liabilities are listed in a separate section after current debt. Long-term liabilities can include bonds, mortgages, and loans that are payable over a term exceeding one year. However, for all long-term liabilities, any amounts due in the current fiscal year are reported under the current liability section.

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