Current Liabilities – Accounting Superpowers

Current Liabilities

Current Liabilities

The Liabilities section in a Balance Sheet is divided into Current Liabilities and Long Term Liabilities.  

Current Liabilities are a company debts or obligations that are due within 12 months.

Typical Current Liabilities in a Balance Sheet include

Accounts Payable 

Accounts Payable

Companies OFTEN buy things on CREDIT. 

(Example - A company could purchase Raw Materials on Credit which are used within it's manufacturing process.)

The Accounts Payable account tracks the amount a company owes for goods or services it has purchased on credit. 

Most Accounts Payable amounts are due within 30, 60 or 90 days from billing based on the company credit policy

The Credit policy of a company is often based on Industry Standards, Economic conditions and the degree of risk involved in extending the credit.

Accounting Speak!

Many Business people use the terms Accounts Payable and Trade Payables interchangeably!

While these are similar, there are some minor differences. 

If you really want to geek out on Accounts Payable and the differences between Trade Payables and Accounts Payable - we have an article about it. Check it out by clicking here.

Notes Payable 

A Note Payable is a liability in writing that promises to pay a specific amount of money to a lender at a future date. 

To put it in laymans terms, Notes Payable are simply Legal IOU's payable in the future.

For Example, when a company borrows money from banks, companies often sign a document called a promissory note which contains all the repayment terms and other terms of the debt. 

The Notes Payable section tracks all such Debt issues. 

You may see the term Notes Payable as classified in the balance sheet both as a short-term liability or Long Term based on when the debt is due. 

If the amount is due within the next 12 months, it will be classified as a Short Term or Current Liability.

On the other hand, it will be a long-term liability if it is due at a date beyond 12 months.

Accrued Expenses

Image of a man holding a clock next to text Accrued Expenses - It's a Liability Clock

Firms typically incur ongoing expenses over the course of time which are payable at a later date.  

Accrued Expenses are the expenses which a Business has incurred but not yet paid. 

For example, utilities expense is often an expense that accrues and is paid at the end of the a particular period. 

The way Accrued Expenses are listed on the Balance Sheet depends on the level of details that a company wants to give. They could be consolidated or written as separate items on the Current Liabilities Section.   

Salaries Pay​able 

Ah Salary Day!  

Probably the best day in the month for an employee. 

The day his (or her) daily toil tunes into cash. 

Cha ching! 

For the employer, the Salaries Payable account tracks the amount of Salaries owed to employees but have not yet been paid.

It is the Account which represents the outgoings from the company to employees on Salary Day.

For Service Firms, it is usually one of the biggest expenses. 

Payroll for a company may sound simple, but is acually quite complex.

Why?

Usually, Payroll is also associated with a number of other things that need be considered before Salaries are actually disbursed - such as Deductions, Federal, State and Other withholding's etc. 

It keeps the HR Department busy and the Accounts Department crunching numbers for many days in the month.  

To take a deep dive into Salaries Payable, the difference between Salaries and Wages and more, you can check out our article here

Taxes Payable 

Tax payable is calculated according to the prevailing tax law in the company's home country.

Most taxes payable are usually current liabilities because the debt is anticipated to be extinguished within the next year.

However, any portion of income tax payable not attributable for payment within the next 12 months is considered a long-term liability.

Disclaimer

The content provided on accountingsuperpowers.com and accompanying courses is intended for educational and informational purposes only to help business owners understand general accounting issues. The content is not intended as advice for a specific accounting situation or as a substitute for professional advice from a licensed CPA. Accounting practices, tax laws, and regulations vary from jurisdiction to jurisdiction, so speak with a local accounting professional regarding your business. Reliance on any information provided on this site or courses is solely at your own risk.

Tax and accounting rules and information change regularly. Therefore, the information available via this website and courses should not be considered current, complete or exhaustive, nor should you rely on such information for a particular course of conduct for an accounting or tax scenario. While the concepts discussed herein are intended to help business owners understand general accounting concepts, always speak with a CPA regarding your particular financial situation. The answer to certain tax and accounting issues is often highly dependent on the fact situation presented and your overall financial status.