If current assets are less than current liabilities, an entity has a working capital deficiency, also called a working capital deficit. The ability to meet the current portion of debt is critical because it represents a short-term claim to current assets and is often secured by long term assets. Common types of short-term debt are bank loans and lines of credit. Working capital is a financial metric that represents the operational liquidity of a business, organization, or other entity. Along with fixed assets, such as property, plant, and equipment, working capital is considered a part of operating capital.
The current liability varies from company to company according to the size & nature of the industries. On the equity side of the balance sheet, as on the asset side, you need to make a distinction between current and long-term items. Your current liabilities are obligations that you will discharge within the normal operating cycle of your business.
Examples of non-current liabilities
In most circumstances your current liabilities will be paid within the next year by using the assets you classified as current. The amount you owe under current liabilities often arises as a result of acquiring current assets such as inventory or services that will be used in liability accounts current operations. You show the amounts owed to trade creditors that arise from the purchase of materials or merchandise as accounts payable. If you are obligated under promissory notes that support bank loans or other amounts owed, your liability is shown as notes payable.
When they are delivered, the company will reduce this liability and increase its revenues. Note that the sales taxes are not part of the company’s sales revenues. Instead, any sales taxes not yet remitted to the government is a current liability. In order to issue a company’s financial statements on a timely basis, it may require using an estimated amount for the accrued expenses. Accounts payable represents the amounts owed to vendors or suppliers for goods or services the company had received on credit. The amount is supported by the vendors’ invoices which had been received, approved for payment, and recorded in the company’s general ledger account Accounts Payable.
Type 4: Taxes payable
Long-term liabilities reflect money owed that is not due and payable within a 12-month time frame. Accounts payable represents money owed to vendors, utilities, and suppliers of goods or services that have been purchased on credit. Most accounts payable items need to be paid within 30 days, although in some cases it may be as little as 10 days, depending on the accounting terms offered by the vendor or supplier.