What's the difference between current and non-current liabilities?
As a business owner, it's essential to understand your company's financial situation, which includes your liabilities. Liabilities refer to any debts or obligations that your business owes to another party. There are two main categories of liabilities: current and non-current liabilities. In this blog post, we'll explore the difference between these two types of liabilities.
Current liabilities are debts or obligations that are due within a year or within the business's operating cycle, whichever is longer. Operating cycle refers to the time it takes for a business to purchase inventory, sell the inventory, and collect cash from the sales. Current liabilities include:
1. Accounts payable - money owed to suppliers for goods or services that the business has received but has not yet paid for.
2. Short-term loans - loans that are due within a year or less.
3. Accrued expenses - expenses that have been incurred but have not yet been paid, such as wages or taxes.
4. Current portion of long-term debt - the portion of long-term debt that is due within a year.
Non-current liabilities are debts or obligations that are due in more than a year or beyond the business's operating cycle. Non-current liabilities include:
1. Long-term loans - loans that are due in more than a year.
2. Bonds payable - long-term debt securities issued by the business to raise capital.
3. Deferred tax liabilities - taxes that will be paid in the future.
Difference between Current and Non-Current Liabilities
The primary difference between current and non-current liabilities is the time frame in which they are due. Current liabilities are due within a year or less, while non-current liabilities are due in more than a year. Another difference is the order in which they are listed on the balance sheet. Current liabilities are listed first, followed by non-current liabilities.
In conclusion, understanding the difference between current and non-current liabilities is crucial for a business owner to manage their finances effectively. It's essential to keep track of your company's liabilities to avoid any financial difficulties in the future. Ensure that you accurately categorize your liabilities and report them correctly on your financial statements.