Current liabilities
Learn what current liabilities are, with NZ examples and how they shape your cash flow and liquidity.
Published Thursday 23 July 2026
Table of contents
Key takeaways
- Current liabilities are the debts your business owes and must pay within 12 months, such as supplier bills, GST, PAYE and short-term loans.
- You work them out by adding up your short-term obligations, and you'll find the total in the current liabilities section of your balance sheet.
- They drive key liquidity measures like working capital and the current ratio, which show whether you can cover what you owe in the near term.
- Lenders, suppliers and Inland Revenue all care about current liabilities, so tracking them helps you protect your cash flow and pay on time.
What are current liabilities?
Current liabilities are the debts a business owes and must pay within 12 months. They're sometimes called short-term liabilities.
You usually settle them using current assets, like the cash in your bank account or money customers still owe you. For businesses with a longer operating cycle, a current liability is simply one due within that normal cycle, but for most small businesses the 12-month rule is the one that matters.
Examples of current liabilities
Current liabilities cover a range of everyday obligations, and the exact mix depends on how your business runs. Here are the most common examples for a New Zealand small business:
- Accounts payable: money owed to suppliers, usually the largest current liability
- GST payable: the net GST you've collected and owe to Inland Revenue
- PAYE and other payroll deductions owed to Inland Revenue
- Income and provisional tax payable
- Accrued expenses: costs like power or rent already used but not yet billed
- Wages payable to employees or contractors
- Short-term loans and bank overdrafts
- Current portion of long-term debt: the part of a longer loan due within 12 months
- Unearned revenue: pre-sold goods or services you still have to deliver
- Interest payable: interest that's built up but not yet paid
If you're registered for GST, your GST payable moves with each return, so it's worth checking the GST guide for business to see how the amounts flow through.
Current liabilities vs non-current liabilities
The difference between the two comes down to timing. Current liabilities are due within 12 months, while non-current liabilities aren't due for longer than that.
A long-term bank loan is a good example of the split. The repayments due in the next 12 months count as a current liability, called the current portion of long-term debt, and the rest sits under non-current liabilities. For a fuller breakdown, see the guide to current versus non-current liabilities.
How to calculate current liabilities
You calculate current liabilities by adding up every short-term obligation your business owes. In plain terms, the formula is:
Current liabilities = accounts payable + accrued expenses + wages payable + interest payable + short-term debt
Say a café is closing off its accounts. It owes suppliers 8,000 dollars in accounts payable, has 1,500 dollars of accrued power and rent, owes 3,000 dollars in wages, 200 dollars in interest, and has a 2,300 dollar short-term loan. Add those together and its current liabilities come to 15,000 dollars.
Current liabilities, working capital and liquidity ratios
Current liabilities are one half of the picture lenders and owners use to judge financial health. Compare them with your current assets and you get a quick read on whether you can cover what you owe.
Working capital is the simplest measure: working capital = current assets − current liabilities. A positive figure means you have enough short-term assets to cover your short-term debts, with something left over to keep trading.
The current ratio takes the same idea further: current ratio = current assets ÷ current liabilities. A ratio above 1 generally means the business can cover its short-term debts, and you can read more in the guide on the current ratio.
The quick ratio works the same way but strips out inventory, since stock can be slow to turn into cash: quick ratio = (current assets − inventory) ÷ current liabilities. It's a stricter test of whether you can pay your bills right now, and it sits alongside the working capital ratio as a common liquidity check. Lenders look closely at your current liabilities and these ratios to judge whether your business can repay a loan.
Why current liabilities matter for your business
Current liabilities have a direct line to your cash flow. Every bill, tax payment and wage run comes out of the cash you have on hand, so knowing what's due helps you plan ahead.
Paying suppliers on time keeps those relationships strong, and paying Inland Revenue on time for GST, PAYE and provisional tax helps you avoid penalties and interest. Staying on top of these dates is easier when you can see them in a cash flow forecast.
Lenders also weigh up your current liabilities before offering finance. A manageable level of short-term debt and a healthy current ratio signal that your business can meet its commitments.
Stay on top of what your business owes with Xero
Keeping track of bills, GST and wages is easier when your numbers live in one place. Xero shows what your business owes and when it's due, so you can plan payments and protect your cash flow. Try it and get one month free.
FAQs on current liabilities
Here are answers to some frequently asked questions about current liabilities.
What is the difference between current and non-current liabilities?
Current liabilities are due within 12 months, while non-current liabilities are due after that. A long-term loan splits across both, with the next 12 months of repayments counted as current.
How do you calculate current liabilities?
Add up all your short-term obligations: accounts payable, accrued expenses, wages payable, interest payable and short-term debt. The total is your current liabilities on the balance sheet.
Is GST payable a current liability?
Yes. The net GST you've collected and owe to Inland Revenue is a current liability, because it's due at your next GST return within 12 months.
What is the difference between the current ratio and the quick ratio?
Both compare current assets with current liabilities, but the quick ratio leaves out inventory. That makes the quick ratio a stricter test of whether you can pay your debts right away.
Are wages and PAYE current liabilities?
Yes. Wages owed to employees or contractors and PAYE deductions owed to Inland Revenue are both short-term debts you'll settle within 12 months.
Related terms
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Disclaimer
This glossary is for small business owners. The definitions are written with their requirements in mind. More detailed definitions can be found in accounting textbooks or from an accounting professional. Xero does not provide accounting, tax, business or legal advice.