Understand current liabilities (also called ‘short term liabilities’), how they appear on the balance sheet and see some common examples of the types of balances that are considered a current liability.
Updated 20 December 2021
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1. What is a Current Liability?
A current liability in accounting is defined as the people and organisations that a business owes money to for debts incurred in the course of trading repayable within one year. Current liabilities of a business appear on the balance sheet since they represent money that needs to be repaid rather than an expense that would appear in the profit and loss account (or income and expenditure statement).
A current liability is also referred to as short term liability or creditor falling due within one year.
2. Examples of Current Liabilities
- Trade creditors;
- Directors loan accounts;
- Unpaid corporation tax;
- Unpaid VAT;
- Or Unpaid PAYE;
3. Current Liability v. Long Term Liability
In accounting, liabilities fall into two categories: current liabilities and long term liabilities. As the name suggests, current liabilities are balances that need to be paid within one year of the balance sheet date, for example, trade creditors. Whereas long term liabilities are balances that need to be paid more than one year after the balance sheet date, for example, a 5 year bank loan or hire purchase agreement.