There are five main categories of current liabilities:
- Accounts payable: This is the money the company currently owes to its suppliers, partners, and employees — the basic costs of business that the company hasn’t yet paid, for whatever reason. One company’s accounts payable is another company’s accounts receivable, which is why both terms are similarly structured. A company has the power to push back the due dates on some of its accounts payable. Paying those debts later than expected can often produce a short-term increase in earnings and current assets.
- Accrued expenses: The company has racked up these bills, but not yet paid them. These are normally marketing and distribution expenses that are billed on a set schedule and have not yet come due.
- Income tax payable: This is a specific type of accrued expense — the income tax a company accrues over the year, but does not have to pay yet, according to various federal, state and local tax schedules. Although they’re subject to withholding, some taxes simply are not accrued by the government over the course of the quarter or the year. Instead, they’re paid in lump sums whenever the bill is due.
- Short-term notes payable: The company has drawn off this amount from its line of credit from a bank or other financial institution. It needs to be repaid within the next 12 months.
- Portion of long-term debt: This represents a chunk of a company’s longer-term obligations that may come due in a given year or quarter. That’s why it’s counted as a current liability, even though it’s called “long term.”