. What is a “Current Liabilities”?

What is a liability? Probable future sacrifices of economic benefits arising from present obligations of an entity to transfer assets or to provide services to other entities in the future as a result of past transactions or events.  FASB Statement of Financial Accounting Concepts No. 6, “Elements of Financial Statements”

Current liabilities are:

Obligations whose liquidation is reasonably expected to require the use of current assets or the creation of other current liabilities.  Accounting Research Bulletin No. 43, “Restatement and Revision of Accounting Research Bulletins”.

SFAS No.78 indicates that current liabilities should include obligations that are due on demand or that will become due on demand within one year from the balance sheet date.

2. Typical current liabilities

Accounts payable, Notes payable, Current maturities of long-term debt, Short-term obligations expected to be refinanced, Dividends Payable, Returnable deposits, Unearned revenues, Sales taxes payable, Income taxes payable, Employee-related Liabilities

a. Notes Payables (N/P) Notes Payables are written promises to pay a certain sum of money on a specified future date. Notes payable that arise from cash-borrowing activities are generally of two types: (1) Interest-bearing notes, and (2) Zero-interest-bearing (=Noninterest-bearing) notes.

Accounting and reporting for interest-bearing notes requires the accountant to accrue interest and report a liability in the amount of the accrued interest payable plus the face value of the note.

Noninterest-bearning notes do not pay any stated rate of interest in addition to the face amount of the notes. The lender deducts interest on such notes in