Financial Accounting: In an Economic Context

CURRENT LIABILITIES

Current liabilities are obligations expected to require the use of current assets or the creation of other current liabilities. They normally include obligations to suppliers (accounts payable), short-term debts, current maturities on long-term debts, dividends payable to shareholders, deferred revenues (services or goods yet to be performed or delivered that are expected to require the use of current assets), third-party collections (e.g., sales tax and payroll deductions), periodic accruals (e.g., wages and interest), and potential obligations related to pending or threatened litigation, product warranties, and guarantees.

Note that current liabilities are defined in terms of obligations “expected to require the use of current assets.” Thus, reported obligations that are not expected to require the use of current assets are not disclosed as current. For example, an obligation due within a year may not be disclosed in the current liabilities section if it is either (1) expected to be paid from assets that are presently listed as noncurrent or (2) expected to be replaced (refinanced) with a long-term liability or equity issuance. Such obligations would normally be disclosed as long-term.

An annual report for Manpower, Inc. stated, “Commercial paper borrowings … have been classified as long-term debt due to our intent and ability to refinance them on a long-term ...