Liability

This query is : Resolved

Report Abuse Follow Query Ask a Query

Querist : Anonymous

Querist : Anonymous (Querist)

24 July 2010 Hi Expert,

Could u please explain the difference between Current Liability & Other Current Liability

CMA Ramesh Krishnan

CMA Ramesh Krishnan (Expert)
Follow

24 July 2010 There is no difference all are current liabilites only

CA Ravi Sisodia

CA Ravi Sisodia (Expert)
Follow

24 July 2010 no difference

CA Ravi Sisodia

CA Ravi Sisodia (Expert)
Follow

24 July 2010 In financial accounting, a balance sheet or statement of financial position is a summary of the financial balances of a sole proprietorship, a business partnership or a company. Assets, liabilities and ownership equity are listed as of a specific date, such as the end of its financial year. A balance sheet is often described as a "snapshot of a company's financial condition".[1] Of the four basic financial statements, the balance sheet is the only statement which applies to a single point in time of a business' calendar year.

A standard company balance sheet has three parts: assets, liabilities and ownership equity. The main categories of assets are usually listed first, and typically in order of liquidity.[2] Assets are followed by the liabilities. The difference between the assets and the liabilities is known as equity or the net assets or the net worth or capital of the company and according to the accounting equation, net worth must equal assets minus liabilities.[3]

Another way to look at the same equation is that assets equals liabilities plus owner's equity. Looking at the equation in this way shows how assets were financed: either by borrowing money (liability) or by using the owner's money (owner's equity). Balance sheets are usually presented with assets in one section and liabilities and net worth in the other section with the two sections "balancing."

Records of the values of each account or line in the balance sheet are usually maintained using a system of accounting known as the double-entry bookkeeping system.

A business operating entirely in cash can measure its profits by withdrawing the entire bank balance at the end of the period, plus any cash in hand. However, many businesses are not paid immediately; they build up inventories of goods and they acquire buildings and equipment. In other words: businesses have assets and so they can not, even if they want to, immediately turn these into cash at the end of each period. Often, these businesses owe money to suppliers and to tax authorities, and the proprietors do not withdraw all their original capital and profits at the end of each period. In other words businesses also have liabilities.

CA Ravi Sisodia

CA Ravi Sisodia (Expert)
Follow

24 July 2010 When defining current liabilities, it is important to think in terms of recurring expenses that are generally handled within thirty to ninety days as a matter of normal operations. These examples of current liabilities would include raw materials used in the production process, goods and services that are used in the process of operating the company on a day to day basis, and equipment purchases that will require only a short time to pay in full. Short-term loans that will also be paid off during the current fiscal year may be considered as current liabilities.

Along with items that can be considered current debt, any other items that appear on the balance sheet for the corporation may be considered current liabilities, provided the money owed will be paid off within the year. Because balance sheets normally group short term and long term debt into two different sections, each line item should be evaluated according to the anticipated resolution date and placed on the sheet accordingly.

One exception to the general application of current liabilities has to do with payments that are currently due on long term mortgages, bonds, and business loans. If the payment dates occur in the current fiscal year, it is acceptable to consider the amount of those payments as current liabilities. However, any remaining balance due on those long-term obligations should be recorded elsewhere in the company accounting as long term debt.