Account Keeping Plus – Administration, Bookkeeping, Compliance News & Tips MYOB Reckon Quickbooks Xero Software TrainingSmall Business

Making Business Books and Accounting Come Alive! MYOB Reckon Xero

Business Finance 101 – What is the difference between Current and Non-Current Liabilities?

Leave a comment


Business Finance 101 – What is the difference between Current and Non-Current Liabilities?

What is the difference between Current and Non-Current Liabilities?

Businesses have liabilities – payments that are to be paid soon or later (long term) they are divided into Current and Non-Current.

Current Liabilities are obligations due to be paid within 12 months or less of the date of a company’s balance sheet and will require the use of a current asset (eg money in bank) or will create another current liability if paid by debt or loan.

Current liabilities are usually listed in the following order:

  1. Credit cards and overdraft accounts, loans less than 12 months;
  2. Accounts payable (trade creditors);
  3. The remaining current liabilities such as payroll taxes payable, superannuation, income taxes payable, interest payable and other accrued expenses.

Often, all the parties who are owed current liabilities are called creditors. In special situations, a legal arrangement may be created that gives preference and then those parties are called secured creditors. The majority of creditors are known as unsecured.

Non-Current Liabilities are liabilities that are to be paid over more than 12 months – typically business or vehicle loans and financing such a Chattel Mortgage. Others include Long Service Leave Accruals, and Directors Loans.

Is the business solvent? One overall method that is used to determine if a business is trading in a solvent manner, is to check if the Current Assets are more than Current Liabilities. The amount of current liabilities is used in financial ratios – such as:

  • Working capital (current assets minus current liabilities) and the company’s;
  • Current ratio (current assets divided by current liabilities).

These give an indication of the company health.

Get a FREE 30 min answer to your query, and FREE ongoing email or phone support – No-one offers as much! Call and you also get FREE “Avoid these GST mistakes” – There’s 18 that the Tax Office see regularly – Get them right!

Email info@accountkeepingplus.com.au or call 0407 361 596 Australia

Advertisements

Author: accountkeepingplus

Administration, bookkeeping and compliance for small business, Training, trouble-shooting, or we can do the books and payroll for you! Self Managed Superannuation Fund Service Provider, free support MYOB Certified Consultant, Reckon/QuickBooks Professional Partner.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s