Today we are going to discusss Current Liabilities and which are the List of Current Liabilities on Balance Sheet at the very inception end. Let’s look at the end of how does it really looks like when we see the current liabilities. We see couple of things like notes and loans payable current portion of the long-term debt accounts payable accrued income taxes other accruals which gives us the total current liabilities.
List of Current Liabilities on Balance Sheet
So first what is current liability on the balance sheet. The list of Current Liabilities on Balance Sheet refers to the debt or the obligation. There are company basically owes. This is very important word owes and is required to settle within one fiscal year or its normal operating cycle whichever is longer such obligation will require the use of the current assets like you know the cash the creation of the non current liability or providing service for settlement. So this liabilities are recorded on the balance sheet, in order of shortest term to longest term the definition does not include the amount that are yet to be incurred as for the accrual basis of the accounting. For example, salary is to be paid to employees for services in the next fiscal year and is not yet due since the service has not yet been incurred. So let’s understand now the list of the current liabilities ease the first and the foremost thing that we are going to study is the current or the accounts payable, which is also known as your creditors accounts payable is usually major component of the current liability. We which is representing the payments due to the suppliers within one year for raw material spot as evidenced by the supply invoices. So here is current liabilities examples that I’m going to show you what we know. We here in this particular case, this is Colgate’s extract of current liabilities. We notably here something that the accounts payable is 1124 and in the previous year it was 11 10. So the accounts payable has significantly increased as compared to 2015. The next thing that we are going to go about in case of the list is the notes payable notes people are basically our short-term financial obligation evidenced by negotiable instrument like Bank bearings or obligation for equipment purchases. This maybe interest bearing or non-interest bearing.
The third thing that we are going to learn is the bank overdraft or banking on order of short-term advances over here made by the banks to offset accounts or dropped you to exist funding about the available limit. You can also learn based on this a concept that is called revolving credit facility.
The next is current portion of long termed debt. Now the current portion of long-term debt is a part of basically the long-term debt due within the 1 year of times pan fifth the current lease that is payable. Now this is the extract again of the current liabilities, which includes the current portion of the capital lease obligation, which we have in our case. So as you can see the Facebook’s, this is basically the Facebook extract from the SEC filings. The Facebook’s current portion of the capital lease was 312 million and that was 279 million in 2011.
The next thing that we have in our list is the accrued income taxes the accrued income taxes or the current tax that has payable. When we talk about this thing income tax. This is basically the income tax that is owed to the government, but it is not yet paid.
The next thing that we have is 7th accrued expenses all its it’s abilities expenses that are not yet payable to the third party. It is already been incurred like interest in salary people. So this are basically an accumulated with the passage of time. However they will get paid when they become due like, for example salaries that employees have earned but not yet been paid is reported as what accrued salaries.
The next thing the next in the list is the dividend that is payable. Now we all know the storm dividend payable are basically the dividend that has been declared but not yet or he could say but yet to be paid to the shareholders. Therefore, they are recorded as the current liabilities in the balance sheet ix the earned income for the unearned revenue. Now unearned revenue our advanced payments made by the customer for the future work to be completed in a short term.
Now the next thing that we are going to learn is have to analyze this current liabilities on the balance sheet. The current liabilities on the balance sheet imposed restrictions on the cash flow of the company. and They have to managed very prudently to ensure that the company has enough current assets to maintain the short-term liquidity. So in most cases the companies are required to maintain the liabilities for recording payments. Which are not yet due. Again the companies may not want to have liabilities because it lowers the long-term interest obligations.
Some of these a important reason by which you can analyze the current liabilities on the balance sheet is as follows. The first one the working capital the what you mean the working capital working capital is basically the capital. Which means fixed assets work in organization. So working capital can be calculated as is equal to current assets less the current liabilities. Your working capita,l working capital a company’s liquidity position can be gouged by analyzing. It’s working capital excessive working capital means that the level of the current assets is much more higher as compared to the current Laboratories on the balance sheet. The excess capital that is blocked up in the asset has an opportunity cost for the firms.
Since it can be invested in the other working capital, which are idle on the other extreme. You can say that you know inadequate or less working capital may post a short-term liquidity issues. If the company maintains current assets which are not yet sufficient enough to meet the liability. So consistent liquidity issues may post problems in the smooth functioning of the firm and affects the credit ability of the company in the market. The next way that you can do is by current ratio or you can do my quick ratio.
Let’s quickly discuss this current liabilities on the balance sheets are also used to calculate the liquidity ratios. For example current ratio and quick ratio. The solutions are basically calculated something like this current ratio is what your current assets divided by. You can say the current liabilities and your quick ratio that qr is basically the current assets. You have to decrease something that is inventories in that and the current liabilities divided by current liabilities will remain the same. So there’ll be no change in that while the working capital is basically an absolute measure current ratio of the working capital ratio can be used to compare the companies against peers. So this ratio basically you can say varies according to industry a ratio of 1.5 is usually and acceptable standard a ratio above 2 you can say or above 1 gives an indication that there is inadequate working capital management current ratio is used in the financial analyst along with the quick ratio. Which is the measure of the company’s ability to meets to meet its liabilities using it’s more liquid asset and a company may post of high current ratio. However it may so happen that most of its current assets are in the firm of inventories. Which are difficult to convert into cash and hands unless liquid. So in case of immediate requirement of funds for meeting liabilities. This less liquid assets would be of no hand and a quick ratio of less than one would signify that the company would be unable to pay back its current liabilities on the balance sheet. Thus a quick ratio is also referred to as the asset test ratio which speaks up that speaks of a company’s financial planning strength. So based on this we can make final conclusion the conclusion is something most of the balance sheet to separate our current liabilities and long-term liabilities. This gives an idea of the short-term dues.It is important information for the lenders Financial Analysts owners executives of the firm to analyze the liquidity working capital business management and compare across the form in the industry. So being a part of the working capital. This is also significant for the come for computing free cash flow to the form although. It is important for you to maintain the current ratio. The quick ratio of the at least one should be the case the current ratio greater than one provides additional cushion to deal with the unforeseen contingencies traditionally manufacturing facilities. For example, maintain current assets at a level double of the current liabilities on the balance sheet. However the increase usage of just-in-time manufacturing technique in modern manufacturing companies like automobile sector has reduced the current ratio require.