Current Liabilities: Definition & Examples

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Lesson Transcript
Instructor: Dr. Douglas Hawks

Douglas has two master's degrees (MPA & MBA) and a PhD in Higher Education Administration.

Financial statements are generally focused on two categories: what you own and what you owe. In this lesson, you'll learn about current liabilities and why they are an important part of what you owe.

Definition of Current Liabilities

In the accounting world, liabilities are financial obligations you have to another organization or individual. If part of your financing is a 20-year bank loan, that's a liability. One week into a pay period, the wages employees have earned but you haven't yet paid are liabilities. Current liabilities are liabilities that need to be paid in full within one year.

Examples of Current Liabilities

Both a bank loan and outstanding wages that need to be paid to employees are examples of liabilities. Only one, however, is a current liability: the accrued wages, because they need to be paid within one year. Often, the two most significant current liabilities include accrued liabilities, like payroll or utility bills and accounts payable, payments owed to creditors for goods or services already received.

Some types of liabilities can have a current portion and a non-current portion, and these are known as mixed liabilities. Let's look at an example. Consider a 60-month (that is to say a 5-year) loan with a monthly payment of $1,000. On a balance sheet, the total of that loan needs to be $60,000. Since $12,000 of that loan is due in the next year (the next 12 months), the current portion of that loan would be $12,000, and the remaining (or the non-current) portion would be $48,000. If that were the only liability on a balance sheet (not likely, but if), it would look like this:

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