current

Examples of current in the following topics:

• Current Ratio

  • It compares a firm's current assets to its current liabilities.
  • The current ratio is calculated by taking total current assets and dividing by total current liabilities.
  • If current liabilities exceed current assets (the current ratio is below 1), then the company may have problems meeting its short-term obligations (current liabilities).
  • A high current ratio can be a sign of problems in managing working capital (what is leftover of current assets after deducting current liabilities).
  • While a low current ratio may indicate a problem in meeting current obligations, it is not indicative of a serious problem.

• Reporting Current Liabilities

  • Current liabilities are typically due and paid for during the current accounting period or within a one year period.
  • They are paid off with assets or other current liabilities .
  • In addition to current liabilities, long-term liabilities are listed in a separate section after current debt.
  • However, for all long-term liabilities, any amounts due in the current fiscal year are reported under the current liability section.
  • Most current liabilities have a claim on cash or other assets.

• Defining Current Liabilities

  • Current liabilities are usually settled with cash or other assets within a fiscal year or operating cycle, whichever period is longer.
  • A current liability can be defined in one of two ways: (1) all liabilities of the business that are to be settled in cash within a firm's fiscal year or operating cycle, whichever period is longer or (2) all liabilities of the business that are to be settled by current assets or by the creation of new current liabilities.
  • Another important point is that current liabilities are many times not "current" and are actually past due.
  • A current liability, such as a credit purchase, can be documented with an invoice.
  • Current liabilities are debt owed and payable no later than the current accounting period.

• Current Maturities of Long-Term Debt

  • The portion of long-term liabilities that must be paid in the coming 12-month period are classified as current liabilities.
  • The portion of long-term liabilities that must be paid in the coming 12-month period are classified as current liabilities.
  • The portion of the liability considered "current" is moved from the long-term liabilities section to the current liabilities section.
  • If the current liability section already has an accounts payable account (balance which is usually paid off in 30 days), the current portion of the loan payable (due within 12 months) would be listed after accounts payable.
  • Explain the reporting of the current portion of a long-term debt

• Classifying Liabilities

  • The two main categories of these are current liabilities and long-term liabilities.
  • Current liabilities are often loosely defined as liabilities that must be paid within a single calender year.
  • A better definition, however, is that current liabilities are liabilities that will be settled either by current assets or by the creation of other current liabilities.
  • Other long-term obligations, such as bonds, can be classified as current because they are callable by the creditor.
  • Contingent liabilities can be current or long-term.

• Acid Test Ratio

  • Quick assets include the current assets that can presumably be quickly converted to cash at close to their book values.
  • The sum is then divided by current liabilities.
  • Note that the calculation omits inventory and a different version of the formula involves subtracting inventory from current assets and dividing by current liabilities.
  • A company with a quick ratio of less than 1 cannot currently pay back its short-term liabilities.
  • The acid-test ratio is similar to the current ratio except the value of inventory is omitted from the calculation.

• Reporting Long-Term Liabilities

  • Since Company X is required to make a 20,000 payment on 1/1/14, which is less than one year away, a current liability of 20,000 and a long-term liability of 80,000 would be reported on its balance sheet as of 12/31/13.
  • Continuing one year forward, Company X would report a current liability of 20,000 and a long-term liability of 60,000 on its balance sheet as of 12/31/2014.
  • What this example presents is the distinction between current liabilities and long-term liabilities.
  • Despite a Note Payable, Bonds Payable, etc., starting out as a long-term liability, the portion of that debt that is due within a year has to be backed out of the long-term liability and reported as a current liability.
  • See below for the balance sheet reporting treatment of the current and long-term liability portions of the Note Payable from initiation to final payment.

• What Goes on the Balances Sheet and What Goes in the Notes

  • The balance sheet lists current liability accounts and their balances; the notes provide explanations for the balances, which are sometimes required.
  • Current liabilities and their account balances as of the date on the balance sheet are presented first, in order by due date.
  • The balances in these accounts are typically due in the current accounting period or within one year.
  • Current liabilities can represent costs incurred for employee salaries and wages, production and build up of inventory, and acquisition of equipment which are needed and used up during normal business operations.
  • Current liability information found in the notes to the financial statements provide additional explanation on the liability balances and any circumstances affecting them.

• Types of Receivables

  • Receivables can be classified as accounts receivables, notes receivable and other receivables ( loans, settlement amounts due for non-current asset sales, rent receivable, term deposits).
  • Other receivables can be divided according to whether they are expected to be received within the current accounting period or 12 months (current receivables), or received greater than 12 months ( non-current receivables).
  • Since accounts receivable are generally collected within two months of the sale, they are considered a current asset.
  • The maturity date of a note determines whether it is placed with current assets or long-term assets on the balance sheet.
  • Notes that are due in one year or less are considered current assets, while notes that are due in more than one year are considered long-term assets.

• Defining Long-Lived Assets

  • Long-lived assets are those that provide a company with a future economic benefit beyond the current year or operating period.
  • Long-lived assets provide a company with a future economic benefit beyond the current year or operating period.
  • Since non-current, or long-lived, assets are expected to last for longer than one year, accounting treats long-lived assets differently according to their useful life.
  • When assets are expected to contribute to earnings for multiple years, such assets are referred to as long-lived, non-current or long-term assets.