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What are the Current and Noncurrent Liabilities

Current and Noncurrent Liabilities

What are Current liabilities

The passive current or liabilities are the liabilities side containing the short – term obligations a company, i.e, debts, and obligations that have less than one year. Therefore, it is also known as demandable in the short term.

It is found in the balance sheet of a company and in turn within the liability, where we distinguish between current and non-current liabilities, to order the accounts that affect the economic activity of the company.

Throughout the liabilities are debts and obligations of payment that the company has contracted to finance. What differentiates current liabilities from non-current liabilities is not their nature, but the term we have to pay the debt, that is, we will face those obligations with a maturity not exceeding one year and that have been generated within the normal cycle of operation, which has a duration of one year.

Examples of Current Liabilities

In current liabilities, we have groups of accounts such as:

  • Liabilities connected to non-current assets held for sale.
  • Short-term provisions.
  • Short-term debt
  • Debts with group companies and associates in the short term.
  • Trade and other payables.

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It is very important to maintain a good management of the liabilities and to classify them properly. Whenever you are asking for financing you will want to study the balances because if the company has high short-term obligations (a high current liability) and does not have sufficient cash flow or sufficient current assets to cover these liabilities, surely no creditor or supplier will want to finance it since the risk of default of new obligations is high.

What are Noncurrent liabilities

The passive on – current, also called fixed liabilities, consists of all those debts and obligations has a firm long term, ie debt maturing more than one year and therefore should not return the principal during the year In progress, but interest.

In the balance sheet, used to bring the accounting of the company, find the person and within liabilities, we can differentiate the current liabilities and noncurrent liabilities.  They arise from the need for financing the company, necessary for the acquisition of non-current assets, cancellation of bonds and redemption of preferred shares among others, among other things.

The elements that constitute the non-current liabilities can be differentiated by their nature:

Examples of Noncurrent liabilities

  • Long-term provisions
  • Long-term debts
  • Debts with group companies and long-term associates
  • Liabilities for tax deferred:
  • Long-term accruals

When we talk about non-current liabilities we refer to long-term financing credits. In this way, by distinguishing current (short-term) liabilities from non-current liabilities (long-term) we can organize the company’s finances and thus create a payment schedule that fits the economic forecasts and business model.

A fundamental difference between non-current liabilities and current liabilities is that with a higher non-current liability, the possibility of negotiating with shareholders with greater force, obtaining capital from a more advantageous source of financing than if they requested it from entities banking.

Among the benefits of not – current liabilities is the liquidity it brings to the company can use this capital for new investments and accelerate growth plans. From the approach of financial accounting, it is essential to create a working capital and for this, the current assets must be greater than the current liabilities. This will allow a margin of action in case there are mismatches in the collection and payment schedule.

However, in a critical situation, companies may be forced to carry out a debt restructuring process to be able to settle short-term debts and avoid bankruptcy situations. This restructuring involves transforming debt into short-term debt, which saves time to solve the financial problems of the company.

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About the author

Salman Qureshi

Salman Qureshi is an Accountant by profession & he loves to write on Commerce & Management Sciences Subject to assist Students. Hope you guys will like his effort.

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