In plain English
Payables, credit card balances, sales tax payable and the current portion of loans are typical.
They are compared with current assets in ratios like the current ratio.
Why it matters
Current liabilities are the bills that will come due soon. Knowing their total tells you how much of your cash and receivables is already committed. Owners who track only their bank balance often find that sales tax, payroll taxes and card balances arrive together and squeeze cash at the same time.
Lenders compare current liabilities with current assets. If you leave out the part of a loan due this year, or forget accrued payroll, your statements look more liquid than they are, which can come up during a loan review.
Worked example
Payables $4,500 plus the next year's loan payments of $3,000 equal $7,500.
How to handle it
- Check that payables, credit cards, sales tax payable, payroll liabilities and short term loans appear under current liabilities.
- Tie each line to a source document such as the card statement, payroll report or sales tax return.
- Split long term loans so the portion due in the next year is shown as current, with help from your accountant if needed.
- Compare current liabilities with current assets every month.
- Clear liability balances when the related payment is made so old amounts do not linger.
Common mistakes
- Recording a sales tax payment as an expense instead of reducing the sales tax liability, which understates profit and leaves a balance that never goes away.
- Showing the entire loan balance as long term, which hides the payments due in the coming year.
- Paying payroll taxes without clearing the liability recorded by payroll, which leaves the balance sheet showing taxes still owed.
- Leaving customer deposits mixed in with income, which removes an obligation from current liabilities.
Not the same as: Accounts payable
Accounts payable is one type of current liability, covering vendor bills. Current liabilities also include credit cards, taxes owed, payroll amounts and short term loan payments. See Accounts payable.
Go deeper
- How to Read a Small Business Balance Sheet: A guide to reading a balance sheet line by line: assets, liabilities, equity, what healthy looks like, and red flags that deserve a question.
Try it
Related terms
- Cutoff: The date used to decide which period a transaction belongs to.
- Debit and credit: The left and right sides of an accounting entry. Every entry has equal debits and credits.
- Current assets: Assets expected to be turned into cash or used up within about a year.
Common questions
What are current liabilities?
Debts and obligations due within about a year.
Can you give an example of current liabilities?
Payables $4,500 plus the next year's loan payments of $3,000 equal $7,500.
Is a credit card balance a current liability?
Yes. The balance is usually due within a month or so, which places it with current liabilities.
What does it mean if current liabilities are higher than current assets?
It can signal that short term obligations may be hard to cover from short term resources. It is worth reviewing cash flow plans and talking with your accountant.
General information, not tax, legal or accounting advice. Confirm rules with the IRS, the NJ Division of Taxation or a licensed professional.