Current Liabilities Assignment Help

Business liabilities are the debts that a company must repay eventually. Here we have discussed how business liabilities arise and impact a business, the types of liabilities, and how to analyze them.

This will help the finance students to learn about the basics of liabilities and how to calculate them.

What are business liabilities?

Liabilities are legal responsibilities or obligations. Many of these small-business obligations are not inherently bad, but they're unavoidable. In terms of accounting, a business must have some liability to succeed. Liabilities include debts such as loans, mortgages, and other owing sums. However, in the actual world, a commercial definition of "liable" has a negative connotation because liability is linked to litigation, which may be costly and problematic.

Example:

Using a credit card to make purchases from suppliers is a sort of borrowing that becomes a liability for your company unless the credit card bill is paid off before the end of the month. Getting a bank overdraft, a business loan, or a mortgage on a business property you own are responsibilities as well. Liabilities might also arise from operations like paying staff and collecting sales tax from customers.

There are two types of business liabilities. They are: 

• Current liabilities
• Non-current liabilities

Click to Connect

What are current liabilities?

The term "current liabilities" refers to a company's short-term financial obligations that are due within a year or during a normal operational cycle. It takes a corporation to purchase inventory and convert it to cash from sales, which is referred to as an operating cycle. Money a firm owes to suppliers in the form of accounts payable is an example of a current liability.

Current liabilities are usually settled with current assets like cash and accounts receivables, etc. The ratio between current assets and current liabilities is crucial in determining a company's capacity to pay its debts on time.

Example

If a corporation has 60-day terms for money owed to its supplier, it may require customers to pay within 30 days. A new current responsibility, such as a new short-term debt obligation, can also be created to settle current liabilities.

Current liabilities on the balance sheet

Below is a list of the most common current liabilities that are found on the balance sheet:

• Accounts payable
• Short-term debt issued to fund activities, such as bank loans or commercial paper
• Dividends to be paid
• Notes payable—the principal part of a debt that is yet owed
• The current component of deferred income, such as customer prepayments for work that has not yet been done or earned
• Long-term debt maturities at the moment
• On outstanding debts, including long-term obligations, interest is due.
• Income taxes due in the coming year

Order Now

Types of current liabilities

1. Accounts Payable

A company must pay its creditors in the short term. As a result, Account Payable encompasses all such obligations. In most businesses, suppliers give their customers some leeway to pay their bills. These debts are recorded as Accounts Payable on the balance sheet by firms or clients. On a company's financial statements, Accounts Payable is usually the largest current liabilities account.

2. Notes Payable

Due to their nature as a short-term financial obligation, these are classified as current liabilities. A company may have to bear interest-bearing or non-interest-bearing notes payable. In any way, the accounts manager records these as payable notes or loans under current liabilities.

3. Bank Account Overdraft

An overdraft on a bank account occurs when a person withdraws more money than his or her account balance allows. Banks only provide this service to a select few consumers and arrange an overdraft limit in advance.

4. Current Portion of Long-term Debt

It is the portion of long-term debt due in the next year. It would be a risky business if a company’s present amount of long-term debt was higher than its cash reserve. This is why investors should keep a close check on the current portion of long-term debt and take appropriate precautions if it continues to rise.

5. Current Lease Payable

Current liabilities include lease obligations that a corporation pays to a lessor in the short term. Capital and operating leases are the two types of leases. The risk and advantages determine the character of the lease.

6. Accrued Expenses

These are costs that have been incurred or recognized but have not yet been paid to the vendor. A business maintains track of these expenses as current liabilities and pays them off as they become due.

7. Dividend Payable

This is also known as a declared dividend, a liability that a company must pay by the due date. The liability's value is determined by the amount declared by the corporation and the payment date. It appears on the liabilities side of the balance sheet unless the corporation pays it.

Non-current liabilities definition

Long-term financial obligations are reported on a company's balance sheet as non-current liabilities, often known as long-term liabilities or long-term debts. These liabilities are long-term debts with maturity dates, as opposed to current liabilities, short-term debts with maturity dates within the next twelve months.

How to calculate current liabilities

Current Liabilities Formula:

Current Liabilities = (Notes Payable) + (Accounts Payable) + (Short-Term Loans) + (Accrued Expenses) + (Unearned Revenue) + (Current Portion of Long-Term Debts) + (Other Short-Term Debts)

Current Liabilities Calculation:

If company XYZ has the following current liabilities mentioned below

Account payable – ₹ 50,000; Wages Payable – ₹ 95,000; Rent Payable- ₹ 2,00,000; Accrued Expense- ₹ 55,000; Short Term Debts- ₹ 60,000

Current Liabilities = 50,000 + 95,000 + 2,00,000 + 55,000 + 60,000 = 4,60,000

This computation will tell you the total amount of current liabilities for that year. Similarly, the calculation can be repeated for numerous years to examine how the results differ.

So, what is the importance of tracking current liabilities?

Current liabilities provide us with a broad picture of your company's short-term financial situation, which is useful for managing working capital expenditures. In general, a corporation is deemed healthy if its current obligations are less than its current assets.

If you still cannot wrap your head around the concept of current liabilities, feel free to fall on the experts at MyAssignmenthelp.com.

Struggling with your finance assignment on current liabilities?

Get assistance from MyAssignmenthelp.com.

Apart from assignment writing assistance, our experts have a wide range of subject experience and offer various additional services. Our website has different high-quality free assignment samples that individuals in need of assignment help may review.

You can now receive financial planning assignment help focused on any topic in just three simple clicks. We guarantee the following benefits when you subscribe to our service:

• 24x7 customer care support
• Accurately analyzed solutions
• Reasonable prices
• On-time delivery before the stated deadline

So, do not hesitate to contact our academic experts for the best finance planning assignment assistance.

Expand Your Knowledge