what are current liabilities 
current liabilities are a company s short term financial obligations that are due within one year or within a normal operating cycle an operating cycle also referred to as the cash conversion cycle is the time it takes a company to purchase inventory and convert it to cash from sales an example of a current liability is money owed to suppliers in the form of accounts payable sydney saporito investopediaunderstanding current liabilitiescurrent liabilities are typically settled using current assets which are assets that are used up within one year current assets include cash or accounts receivable which is money owed by customers for sales the ratio of current assets to current liabilities is important in determining a company s ongoing ability to pay its debts as they are due accounts payable is typically one of the largest current liability accounts on a company s financial statements and it represents unpaid supplier invoices companies try to match payment dates so that their accounts receivable are collected before the accounts payable are due to suppliers for example a company might have 60 day terms for money owed to their supplier which results in requiring their customers to pay within a 30 day term current liabilities can also be settled by creating a new current liability such as a new short term debt obligation companies will include liabilities on their balance sheet some businesses will use a common size balance sheet that shows numeric values and the relative percentage of the liability below is a list of the most common current liabilities that are found on the balance sheet sometimes companies use an account called other current liabilities as a catch all line item on their balance sheets to include all other liabilities due within a year that are not classified elsewhere current liability accounts can vary by industry or according to various government regulations analysts and creditors often use the current ratio the current ratio measures a company s ability to pay its short term financial debts or obligations the ratio which is calculated by dividing current assets by current liabilities shows how well a company manages its balance sheet to pay off its short term debts and payables it shows investors and analysts whether a company has enough current assets on its balance sheet to satisfy or pay off its current debt and other payables the quick ratio is the same formula as the current ratio except that it subtracts the value of total inventories beforehand the quick ratio is a more conservative measure for liquidity since it only includes the current assets that can quickly be converted to cash to pay off current liabilities a number higher than one is ideal for both the current and quick ratios since it demonstrates that there are more current assets to pay current short term debts however if the number is too high it could mean the company is not leveraging its assets as well as it otherwise could be although the current and quick ratios show how well a company converts its current assets to pay current liabilities it s critical to compare the ratios to companies within the same industry the analysis of current liabilities is important to investors and creditors banks for example want to know before extending credit whether a company is collecting or getting paid for its accounts receivable in a timely manner on the other hand on time payment of the company s payables is important as well both the current and quick ratios help with the analysis of a company s financial solvency and management of its current liabilities accounting for current liabilities