What are Current liabilities – Explained with Examples

Meaning-of-Current-liabilities

Current liabilities is a type of loan that must be repaid within one year (maximum 1 year). These loans are better known as short-term liabilities. This type of liabilities are taken to achieve smooth operation of the business. In simple words, they fulfill the working capital requirement of the business.

Current liabilities appear in favor of liabilities in the balance sheet. The following accounts are shown in this group of balance sheets: –

  1. Sundry Creditor/Trade Payables
  2. Bills Payables 
  3. Short Term Loans
    • From Banks
    • From Financial Institution
    • From Partners or investors
  4. Outstanding Expenses
  5. Pre received Income
  6. Dividend Payable to Shareholder
  7. Taxes & Duties Payable 

1. Sundry Creditor/Trade Payables: 

The business has to pay some people or firms against credit purchases of goods or any other assets, these are classified as Sundry creditors in the financial statements.

2. Bills Payables:

The bill payable is a provision note. It is similar to a check, but it has a maturity date, except the expiry date, like a check.

3. Short Term Loans: 

Short Term loans include the Bank overdraft and loan from the partner, for the period which is repayable within 1 year.

4. Outstanding Expenses:

Those expenses which are due but not paid due to some reasons like non availability of funds. For example, Salary outstanding, Electricity Bill Outstanding, Rent Outstanding etc. 

5. Pre received Income

Those incomes which business are received prior to their due date. For example, Advance rent received, Advance commission received, etc.

6. Dividend Payable to Shareholder:

The amount of Dividend which is delceared but not paid to shareholder yet. 

7. Taxes & Duties Payable:

There are many types of taxes are collected from the business by the government of the country. So, if any type of tax is due but not paid will be grouped under current liability.

In India, there is some example of taxes are given below: 

  1. Income Tax
  2. Goods and Services Tax
  3. Custom Duty
  4. Municipal Tax
  5. Electricity Duty 

Placement of a Current liabilities in the balance sheet: –

The placement of a current liabilities in the balance sheet, This is a group of balance sheet which shown seperate. These are shown in the following format of the balance sheet and highlighted with orange colour: –

Name of the Entity
Balance Sheet as on 31st March, _______
Liabilities  Amount Assets  Amount 
Current Liabilities    Current Assets   
Trade Creditors    Cash in hand   
Bills Payable    Cash at Bank  
Outstanding Expenses    Inventories   
Advance/Unearned Incomes   Bills payable   
Short term loans    Sundry Debtors   
Non-Current Liabilities    Prepaid Expenses   
long terms loans   Accrued Incomes   
Debentures    Fixed/Non-Current Assets  
Capital   Building   
Add:  Net profit    Land   
   interest on Capital
  Plant & machine   
Less:  Drawings    Furniture & fixture   
   Net Loss    Goodwill   
       
       

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