Financial Terms
Current liabilities

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Definition of Current liabilities

Current Liabilities Image 1

Current liabilities

Amount owed for salaries, interest, accounts payable and other debts due within 1 year.

Current liabilities

Bills a company must pay within the next twelve months.

Current liabilities

Amounts due and payable by the business within a period of 12 months, e.g. bank overdraft, creditors and accruals.

current liabilities

current means that these liabilities require payment in
the near term. Generally, these include accounts payable, accrued
expenses payable, income tax payable, short-term notes payable, and
the portion of long-term debt that will come due during the coming year.
Keep in mind that a business may roll over its debt; the old, maturing
debt may be replaced in part or in whole by new borrowing.

Current Liabilities

Debts or other obligations coming due within a year.

Related Terms:

Acid-test ratio

Also called the quick ratio, the ratio of current assets minus inventories, accruals, and prepaid
items to current liabilities.

Net assets

The difference between total assets on the one hand and current liabilities and noncapitalized longterm
liabilities on the other hand.

Net working capital

current assets minus current liabilities. Often simply referred to as working capital.

Current Liabilities Image 2

Quick ratio

Indicator of a company's financial strength (or weakness). Calculated by taking current assets
less inventories, divided by current liabilities. This ratio provides information regarding the firm's liquidity
and ability to meet its obligations. Also called the Acid Test ratio.

Total debt to equity ratio

A capitalization ratio comparing current liabilities plus long-term debt to
shareholders' equity.

Working capital

Defined as the difference in current assets and current liabilities (excluding short-term
debt). current assets may or may not include cash and cash equivalents, depending on the company.

Working capital management

The management of current assets and current liabilities to maximize shortterm liquidity.


A ratio that shows how well a company could pay its current debts using only its most liquid or “quick” assets. It’s a more pessimistic—but also realistic—measure of safety than the current ratio, because it ignores sluggish, hard-toliquidate current assets like inventory and notes receivable. Here’s the formula:
(Cash + Accounts receivable + Marketable securities) / (current liabilities)

Current ratio

A ratio that shows how many times a company could pay its current debts if it used its current assets to pay them. The formula:
(current assets) / (current liabilities)


Purchases of goods or services from suppliers on credit to whom the debt is not yet paid. Or a
term used in the Balance Sheet to denote current liabilities.

Working capital

current assets less current liabilities. Money that revolves in the business as part of the process of buying, making and selling goods and services, particularly in relation to debtors, creditors, inventory and bank.

Indirect method

A method of preparing the operating section of the Statement of Cash Flows that does not use the company’s actual cash inflows and cash outflows, but instead arrives at the net cash flow by taking net income and adjusting it for noncash expenses and the changes from last year in the current assets and current liabilities.

Current Liabilities Image 3

acid test ratio (also called the quick ratio)

The sum of cash, accounts receivable, and short-term marketable
investments (if any) is divided by
total current liabilities to compute this ratio. Suppose that the short-term
creditors were to pounce on a business and not agree to roll over the
debts owed to them by the business. In this rather extreme scenario, the
acid test ratio reveals whether its cash and near-cash assets are enough
to pay its short-term current liabilities. This ratio is an extreme test that
is not likely to be imposed on a business unless it is in financial straits.
This ratio is quite relevant when a business is in a liquidation situation
or bankruptcy proceedings.

Current Ratio

A measure of the ability of a company to use its current assets to
pay its current liabilities. It is calculated by dividing the total current
assets by the total current liabilities.

Quick Ratio

A measure of how easily a company can use its most liquid current
assets to meet its current liabilities. It is calculated by subtracting
the book value of the inventories from the total book value of
current assets and dividing the result by the total book value of
current liabilities. Also known as acid-test ratio.

working capital

total current assets minus total current liabilities

Working capital

The amount of a company’s current assets minus its current liabilities;
it is considered to be a prime measure of its level of liquidity.

net working capital

current assets minus current liabilities.

Working Capital

current assets minus current liabilities

Current Ratio

current assets divided by current liabilities. This ratio indicates the extent to which the claims of short-term creditors are covered by assets expected to be converted to cash in the near future.

Quick Ratio

The simple ratio of a company's liquid assets to current liabilities. Such assets include cash, marketable securities, and accounts receivable.

Working Capital

Funds invested in a company's cash, accounts receivable and inventory. Net working capital is current assets minus current liabilities.

Current account

Net flow of goods, services, and unilateral transactions (gifts) between countries.

Current assets

Value of cash, accounts receivable, inventories, marketable securities and other assets that
could be converted to cash in less than 1 year.

Current coupon

A bond selling at or close to par, that is, a bond with a coupon close to the yields currently
offered on new bonds of a similar maturity and credit risk.

Current issue

In Treasury securities, the most recently auctioned issue. Trading is more active in current
issues than in off-the-run issues.

Current maturity

current time to maturity on an outstanding debt instrument.
current / noncurrent method
Under this currency translation method, all of a foreign subsidiary's current
assets and liabilities are translated into home currency at the current exchange rate while noncurrent assets
and liabilities are translated at the historical exchange rate, that is, the rate in effect at the time the asset was
acquired or the liability incurred.

Current rate method

Under this currency translation method, all foreign currency balance-sheet and income
statement items are translated at the current exchange rate.

Current ratio

Indicator of short-term debt paying ability. Determined by dividing current assets by current
liabilities. The higher the ratio, the more liquid the company.

Current yield

For bonds or notes, the coupon rate divided by the market price of the bond.

Current-coupon issues

Related: Benchmark issues

Long-term liabilities

Amount owed for leases, bond repayment and other items due after 1 year.

Other current assets

Value of non-cash assets, including prepaid expenses and accounts receivable, due
within 1 year.

Other long term liabilities

Value of leases, future employee benefits, deferred taxes and other obligations
not requiring interest payments that must be paid over a period of more than 1 year.

Current assets

Cash, things that will be converted into cash within a year (such as accounts receivable), and inventory.


What a company owes to its creditors. In other words, debts.


Bills that are payable in more than one year, such as a mortgage or bonds.

Current assets

Amounts receivable by the business within a period of 12 months, including bank, debtors, inventory and prepayments.


Debts that the business owns.

Long-term liabilities

Amounts owing after more than one year.


Amounts owed by the company.

current assets

current refers to cash and those assets that will be turned
into cash in the short run. Five types of assets are classified as current:
cash, short-term marketable investments, accounts receivable, inventories,
and prepaid expenses—and they are generally listed in this order in
the balance sheet.

current ratio

Calculated to assess the short-term solvency, or debt-paying
ability of a business, it equals total current assets divided by total current
liabilities. Some businesses remain solvent with a relatively low current
ratio; others could be in trouble with an apparently good current ratio.
The general rule is that the current ratio should be 2:1 or higher, but
please take this with a grain of salt, because current ratios vary widely
from industry to industry.

spontaneous liabilities

See operating liabilities.

concurrent engineering

see simultaneous engineering

Current asset

Typically the cash, accounts receivable, and inventory accounts on the
balance sheet, or any other assets that are expected to be liquidated within a short
time interval.

Current cost

Under target costing concepts, this is the cost that would be applied to a
new product design if no additional steps were taken to reduce costs, such as
through value engineering or kaizen costing. Under traditional costing concepts, this
is the cost of manufacturing a product with work methods, materials, and specifications
currently in use.

Current liability

This is typically the accounts payable, short-term notes payable, and
accrued expense accounts on the balance sheet, or any other liabilities that are
expected to be liquidated within a short time interval.

current yield

Annual coupon payments divided by bond price.

Current Account

That part of the balance of payments accounts that records demands for and supplies of a currency arising from activities that affect current income, namely imports, exports, investment income payments such as interest and dividends, and transfers such as gifts, pensions, and foreign aid.

Current Dollars

A variable like GDP is measured in current dollars if each year's value is measured in prices prevailing during that year. In contrast, when measured in real or constant dollars, each year's value is measured in a base year's prices.

Current Yield

The percentage return on a financial asset based on the current price of the asset, without reference to any expected change in the price of the asset. This contrasts with yield-to-maturity, for which the calculation includes expected price changes. See also yield.

Current Tax Payment Act of 1943

A federal Act requiring employers to withhold income taxes from employee pay.

Current Income Tax Expense

That portion of the total income tax provision that is based on
taxable income.

Current Assets

Cash and other company assets that can be readily turned into cash within one year.

Price/book ratio

Compares a stock's market value to the value of total assets less total liabilities (book
value). Determined by dividing current stock price by common stockholder equity per share (book value),
adjusted for stock splits. Also called Market-to-Book.

Temporal method

Under this currency translation method, the choice of exchange rate depends on the
underlying method of valuation. Assets and liabilities valued at historical cost (market cost) are translated at
the historical (current market) rate.


Refers to the ability of a business to pay its liabilities on time
when they come due for payment. A business may be insolvent, which
means that it is not able to pay its liabilities and debts on time. The current
ratio and acid test ratio are used to evaluate the short-term solvency
prospects of a business.







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