A current liability is the obligation for a company which is due within one year from the date of a company’s balance sheet. To meet the current liability, it will require the use of a current asset or will create another current liability.
Current liabilities are usually presented in the particular order, in terms of liquidity:
- Principal portion of long term loans which are payable within one year
- Accounts payable
- Statutory dues such as income taxable due
- any other current liabilities and other accrued expenses
The parties to whom the company owes current liabilities are referred to as creditors. The creditors which have a lien on company assets are known as secured creditors and the creditors which do not have any lien on assets are referred to as unsecured creditors.
There are multiple uses of current liabilities as it helps investors in calculation of a company's working capital (current assets minus current liabilities) and also the company's current ratio (current assets divided by current liabilities).