Non-current liabilities
Understand non-current liabilities, the main types and examples, and how they appear on your balance sheet.
Published Monday 31 August 2026
Table of contents
Key takeaways
- Non-current liabilities are debts and obligations your business does not expect to settle within 12 months, which is why they are also called long-term liabilities.
- They sit below current liabilities on the balance sheet, ordered by maturity, and include long-term loans, leases, bonds, deferred tax, and provisions.
- Comparing your non-current liabilities to cash flow shows whether you can service long-term debt while still funding day-to-day operations.
- Lenders and investors read your non-current liabilities to judge leverage and solvency before extending credit or backing your business.
What are non-current liabilities?
Non-current liabilities are the financial obligations your business does not expect to settle within 12 months. They are also called long-term liabilities, and you report them separately from short-term debts on your balance sheet.
Think of a five-year loan for a delivery van. The balance you still owe beyond the next 12 months sits with your long-term obligations, not the bills you pay this month. Even though payment is not due soon, it pays to keep these debts in view, because you often make repayments toward a long-term loan throughout the year. According to the Corporate Finance Institute, these are obligations that are not expected to be settled within one year.
Non-current liabilities vs current liabilities
The difference between current and non-current liabilities comes down to timing. Current liabilities fall due within 12 months, while non-current liabilities extend beyond a year.
Both types appear in the liabilities section of your balance sheet, grouped so you can see what you owe soon and what you owe later. The split also affects your working capital: rising current liabilities reduce it, while non-current liabilities have no direct effect. You can dig into the short-term side of the picture with the current ratio, which compares current assets to current liabilities.
Here are the main distinctions to keep in mind:
- Repayment window: current liabilities are due within one year, non-current liabilities after one year
- Typical items: current covers accounts payable and short-term loans, non-current covers long-term loans and lease obligations
- Balance sheet life: current liabilities usually appear for one period, non-current liabilities carry over from year to year
Many current liabilities are tied to non-current ones. If you buy equipment with a five-year loan worth ₱1,200,000, the portion due in the next 12 months counts as a current liability, while the remaining balance stays in non-current liabilities.
Types of non-current liabilities
Non-current liabilities take several forms, depending on how your business is funded and structured. Knowing the main categories helps you record them accurately and plan repayments.
- Long-term loans: bank borrowings and financing repayable over more than a year, often used to fund equipment or expansion
- Long-term leases: commercial leases for premises or equipment that run beyond 12 months
- Credit lines: revolving facilities you draw down, repay, and reuse, treated as non-current when the term exceeds a year
- Bonds payable: amounts owed to bondholders when the bond matures beyond the next year
- Notes payable: promissory notes to lenders for money borrowed that is due outside the next 12 months
- Deferred tax liabilities: tax owed now but payable in a future period, often from timing differences in depreciation
- Provisions: amounts set aside for likely future costs such as warranties, restructuring, or severance
- Deferred revenue: payments received for products or services you have not yet delivered, where delivery falls beyond a year
Long-term loans are one of the most common types, and staying on top of repayments is part of good debt management for any small business.
Examples of non-current liabilities
Real examples make the categories easier to spot in your own accounts. Here is how each type might look for a Philippine small business.
- Long-term lease: a five-year lease on your office or retail space
- Long-term loan: a ₱2,000,000 bank loan to buy manufacturing machinery, repaid over six years
- Credit line: a revolving facility used to fund larger operating costs, with a term beyond 12 months
- Bonds or notes payable: funds raised from investors to finance a capital project
- Deferred tax liability: tax deferred because your books and tax records treat depreciation differently
- Provision: money set aside to cover product warranties you expect to honour in later years
How non-current liabilities appear on a balance sheet
On the balance sheet, non-current liabilities are listed below current liabilities, so the order runs from the debts due soonest to those due furthest out. Within the section, items are generally ordered by maturity date and grouped by type.
Your balance sheet does not usually spell out every single obligation. Instead, businesses group similar items into major line items, with an all-encompassing "other non-current liabilities" line to capture the rest. Every entry has a matching entry elsewhere in your books, so a new ₱1,000,000 loan increases both your cash and your notes payable. You can see how the section fits alongside your other reports in a full set of financial statements.
Key financial ratios that use non-current liabilities
Lenders, investors, and financial analysts use non-current liabilities in several ratios to gauge how much debt your business carries and whether you can service it. These measures turn the numbers on your balance sheet into a quick read on leverage and solvency.
- Debt ratio: total debt divided by total assets, showing how much of your business is funded by borrowing. A lower ratio points to a stronger equity position
- Interest coverage ratio: earnings before interest and taxes divided by interest expense, showing how comfortably you can cover interest payments
- Debt-to-equity ratio: total debt weighed against owner funds, indicating how reliant you are on borrowing to grow
The debt-to-equity balance is closely related to your gearing ratio, which most small businesses aim to keep in a moderate range so they can grow without taking on excessive risk.
Why non-current liabilities matter for your business
Non-current liabilities show the long-term commitments behind your business, and they shape decisions well beyond the current year. When you know what you owe and when, you can plan repayments rather than get caught short.
Comparing your long-term debt to expected cash flow tells you whether taking on new borrowing makes sense. Stable cash flow can support a higher debt load, while tight cash flow is a signal to hold off. Building a cash flow forecast helps you test those decisions before you commit, so you can invest in growth without straining day-to-day operations.
Manage your non-current liabilities with Xero
Keeping long-term debt organised is easier when your numbers update in real time. Xero accounting software brings your loans, leases, and reporting into one place, generating your balance sheet automatically from the transactions you record. You can see your non-current liabilities at a glance, compare periods, and share clear reports with your lender, accountant, or bookkeeper. See exactly what you owe and when, and get one month free to try it for your own business.
FAQs on non-current liabilities
Here are answers to common questions about non-current liabilities.
Is accounts payable a non-current liability?
No. Accounts payable is money owed to suppliers that is usually due within 12 months, so it counts as a current liability. It would only be non-current in the rare case that payment is due beyond a year.
How do you calculate total non-current liabilities?
Add up every obligation due after 12 months, such as long-term loans, leases, bonds, deferred tax, and provisions. The total is the figure that appears in the non-current liabilities section of your balance sheet.
What are deferred tax liabilities?
Deferred tax liabilities are taxes you owe now but will pay in a future period, often because your books and tax records treat items like depreciation differently. They are classified as non-current when payment falls beyond the next year.
What is the difference between assets and liabilities?
Assets are resources your business owns that hold economic value, while liabilities are the debts and obligations you owe to others. Subtracting total liabilities from total assets gives your owner's equity.
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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.