Glossary
Current liability
An amount the business must pay within a year.
What it means
An obligation expected to be settled within the normal operating cycle or within twelve months of the reporting date.
Example
Trade payables and a bank overdraft are current liabilities.
Why it matters
They are set against current assets to assess short-term solvency (liquidity).
In practice
Current liabilities are grouped near the foot of the statement of financial position, just below current assets. They are deducted from current assets to give working capital, also called net current assets. Typical entries are trade payables, a bank overdraft, accrued expenses and any short-term loan or tax due within twelve months. Each has a credit balance in the ledger.
Imagine a trader who owes RM2,000 to suppliers, has an overdraft of RM500 and has an accrued electricity bill of RM150. Current liabilities total RM2,650. If current assets are RM6,000, working capital is RM3,350.
Students often confuse a current liability with a non-current one. The dividing line is timing. A current liability falls due within a year. A non-current (long-term) liability, such as a bank loan repayable over five years, is settled after more than a year.
The same loan can appear under both headings. The part repayable in the coming year is current and the rest is non-current. This split matters because liquidity ratios depend on which liabilities count as short term.
If working capital questions feel messy, one of our teachers can rebuild the calculation with you from the trial balance. Book a trial class.
Related terms
Definitions here are general accounting explanations for study. For your board's exact wording, see its official syllabus via Sources.
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