We can understand how current liabilities to the part of it that houses all the responsibilities of the company or business in the short term, that is, they are all those accounts of the commitments that said company must pay in less than one year.
The current liabilities in themselves they are debts that must be paid, therefore, this current liability should not exist in the company for a long period of time. This is in constant motion within the company, whether in its financial activities or commitments. Current liabilities are also known as the origin of the business fund, which certifies where the money obtained comes from.
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In this article you will find:
How is current liabilities composed?
In the current liabilitiesor current we can find the following groups of components:
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- Short term debts: are those that are obtained from third parties, either through loans or another type of debit. These must be canceled within a year.
- Short-term debts with companies: when financial commitments are obtained with associated companies, these must also be settled in a short period of time.
- Trade creditors: are the commitments that the company acquires to the people who provide the company with either raw materials or other services. These are acquired in order for the company to function properly.
- Short-term provisions: are those payments of contracts, taxes, transactions and other movements that must be paid in a period of less than one year.
Characteristics of current liabilities
This liability presents a series of characteristics that define it:
- This liability is due in a short period of time, less than a year.
- Some include interest payments, especially when it comes to bank loans.
- These current liabilities are the debts that are obtained with third parties, which must be paid in the established time.
Classification of current liabilities
Two classifications of current liabilities can be found, which are:
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Express liabilities
All negotiations and financing with the different associated banks and the financial institutions that work with it are part of this liability. All these commitments must be canceled quickly, as well as the interest resulting from the financing.
To understand it in a simpler way, the express liabilities are the commitments that result from all those operations that were performed outside the scope of production of said company, that is, commitments that are not life productive. Insurance policies, short-term loans, are the most common express liabilities. It is important to know that all financing with interests in between falls into this category.
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Spontaneous liability
They are all those expenses that come hand in hand with the life and production of the company, these are generated automatically over time. This classification includes all the activities that result from the life of the company, such as the hiring employees, paying taxes, maintaining equipment and purchasing from suppliers.
Control of current liabilities
It is essential that all existing liabilities are registered, in order to be able to have knowledge of all outstanding debts. Order them with a date, in order to know which ones have a longer period of time to cancel them. The people behind the approval of liabilities and the administration of them must be authorized and trained to maintain good order.
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Unauthorized liabilities should not be included in the accounting, nor should they be canceled, since there may be a loss of money as it is not a real liability. It is of utmost importance that, at the end of the working year, the liabilities canceled and those that remain to be canceled are established, to be included in the new book.
Payments must be exercised with the greatest responsibility, not suppliers and creditors, who are the ones who lend money at interest. It is important to have a close and professional relationship with these people and institutions, since they are the ones who help in the work and productive activity of the company.
In general, the largest amount of current liabilities come from suppliers, who set a cancellation date between 1 and 3 months, for which it must be canceled in that period of time for the good reputation of the company, so that they can later release the merchandise or services.
Current liabilities must be well managed and classified, since when another debt is to be acquired such as a financing or loan, they will ask for the documents that certify that the company does not have large debts and that they are able to pay off the one they are requesting. It is vitally important to record all the operations carried out, as well as the loan applications or the cancellation of debts, so that at the end of the day there are no problems and everything is organized and embodied.
To find a quick solution in the case of not being able to solve the outstanding debts, you can negotiate with the institution or the provider, to give you a longer date to cancel the pending payment or request pending collections from clients, in order to ensure cash for debts or interests.
Current liabilities on the balance sheet
The balance sheet is a document that reflects the assets, liabilities and capital of a company, to keep a good administration and order in the accounting area, to know what is the true economic situation of the business.
Current liabilities are included in the classification of liabilities, together with fixed or non-current liabilities. It is essential that current liabilities be less than fixed assets, as this would mean that the company has a good cash income and is able to pay short-term expenses and debt. Current liabilities should never exceed fixed assets, since assets will begin to be financed by current liabilities.
The less current liabilities, the better for the company, since it will have a higher margin of assets, which means cash.
