What is a Current Liability?
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What is a Current Liability?
A current liability is a short-term debt or obligation that arises from the day-to-day operations of the business. This is a financial obligation that a business must settle within one year and they are important indicators of a company's short-term financial health and liquidity. Examples of current liabilities include short-term loans, which are loans from the bank which are due within 12 months. Bank overdraft, which allows the business to borrow a pre-agreed amount of money, providing a temporary buffer for unplanned expenses. Trade payables, which is money owed to suppliers for goods or services received but not yet paid. And also accruals, which is expenses that have not been paid for, such as wages or salaries owed to employees. and also tax which is payable. So let's go back to our friend Redd and their delivery company. Here are a few examples of current liabilities in their business. A trade payable, which is where Redd owes money to a supplier for the last month's fuel for the delivery vans. A short-term bank loan where Redd had to take out a loan to cover unexpected expenses for fixing a broken down delivery van and also accrued wages where Redd may not yet have paid their drivers for the last two weeks of work. All of these three are current liabilities because: it is an obligation, that needs to be settled by the business, and Redd must settle them within the next year.
