Current liabilities
Learn what current liabilities are, the main types, and how to calculate them.
Published Wednesday 12 August 2026
Table of contents
Key takeaways
- Current liabilities are the debts and financial obligations your business must settle within 12 months, or one operating cycle, whichever is longer.
- Common types include accounts payable, accrued expenses, short-term loans, taxes payable and wages payable.
- Tracking current liabilities helps you work out your working capital and current ratio, two key measures of short-term financial health.
- Staying on top of these obligations protects your cash flow and helps you avoid late fees or strained supplier relationships.
What are current liabilities?
Current liabilities are the debts and financial obligations your business is expected to pay within 12 months, or one operating cycle, whichever is longer. Also called short-term liabilities, they appear on the liabilities section of your balance sheet, listed separately from non-current (long-term) liabilities.
Think of them as the bills coming due soon. They arise when your business buys on credit, incurs an expense like rent or electricity, takes a short-term loan, or receives prepayment for goods or services you still have to deliver.
In the accounting equation (assets = liabilities + equity), current liabilities form part of the total amount your business owes to others. Keeping them in check is essential for healthy cash flow.
Types of current liabilities
Several kinds of short-term obligation fall under current liabilities. These are the ones you'll come across most often in small business accounting.
- Accounts payable: money owed to suppliers for goods or services already received but not yet paid for, such as inventory, raw materials or equipment bought on credit
- Accrued expenses: costs your business has run up but not yet been billed for, including utility bills and interest on loans
- Wages payable: salaries and wages owed to employees for work already done but not yet paid
- Taxes payable: VAT, income tax, payroll taxes and other amounts owed to SARS that are due within the year
- Short-term loans: the portion of any bank loan, business credit card balance or line of credit repayable within 12 months
- Unearned revenue: payments received from customers for goods or services you haven't delivered yet
Accounts payable is usually the biggest of these. In South Africa's trade sector, trade and other payables make up 46% of total liabilities, according to Statistics South Africa. Staying on top of your accounts payable process keeps suppliers paid on time and protects those relationships.
How to calculate current liabilities
To find your total current liabilities, add up every short-term obligation due within the next 12 months. A simple version of the formula looks like this:
Total current liabilities = accounts payable + accrued expenses + wages payable + taxes payable + short-term loans + unearned revenue.
Say your business owes R60,000 in accounts payable, R15,000 in accrued expenses, R20,000 in wages payable and R10,000 in short-term loans. Your total current liabilities come to R105,000. You'll find these figures on your balance sheet, and once you know the total you can use it to work out two useful measures of financial health.
Working capital
Working capital shows how much money is left after covering your short-term debts, and you calculate it by subtracting current liabilities from current assets.
Working capital = current assets − current liabilities.
A positive number means you have more short-term assets than debts, giving you a buffer for unexpected costs. Learn more about working capital and how to manage it.
Current ratio
The current ratio compares your current assets to your current liabilities, showing how many rands of current assets you hold for every rand you owe in the short term.
Current ratio = current assets ÷ current liabilities.
A ratio above 1 means you can cover your short-term debts, and many lenders view a current ratio between 1.5 and 2 as healthy for a small business.
Current liabilities vs non-current liabilities
The key difference is timing. Current liabilities are due within 12 months, while non-current liabilities extend beyond a year.
Non-current liabilities include multi-year business loans, long-term leases and mortgages. When a long-term obligation enters its final 12 months before the due date, that portion moves from non-current to current liabilities on your balance sheet.
For example, if you have a five-year business loan, the repayments due in the final year count as current liabilities, while the earlier portions stay non-current.
Why current liabilities matter for your business
Tracking current liabilities gives you a clearer picture of your short-term financial health. Here's why it matters:
- Cash flow planning: knowing what's due soon helps you time payments and avoid shortfalls
- Supplier relationships: paying on time protects your reputation and can help you negotiate better terms
- Avoiding penalties: missing tax deadlines or loan repayments can lead to late fees and interest charges
- Loan applications: lenders look at your current liabilities and current ratio to judge whether you can meet your obligations
Current liabilities are only one side of the story. You also need to collect what customers owe you, so keeping your accounts receivable moving is just as important for covering short-term debts. Reviewing both regularly, as part of good cash flow management, helps you spot problems early.
Manage your current liabilities with Xero
Cloud accounting software makes it easier to track what you owe and when it's due. Xero gives you real-time visibility of your balance sheet, so you can watch current liabilities alongside your cash flow and plan ahead with confidence. To see your full financial position in one place, get one month free and start tracking what your business owes.
FAQs on current liabilities
Here are answers to some common questions about current liabilities.
Is accounts payable a current liability?
Yes. Accounts payable is money owed to suppliers for goods or services bought on credit, and because it's usually due within a year it sits under current liabilities on your balance sheet.
What is the difference between current liabilities and current assets?
Current liabilities are short-term debts you must pay within 12 months, while current assets are things you can turn into cash within the same period, such as cash, inventory and money customers owe you.
Is unearned revenue a current liability?
Yes. Unearned revenue is a payment you've received for goods or services you still have to deliver, so it's recorded as a current liability until you fulfil the order.
What is a healthy current ratio?
A current ratio above 1 means you can cover your short-term debts, and a ratio between 1.5 and 2 is generally considered healthy, though the ideal figure varies by industry.
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.