Current liabilities are those obligations of a company which are payable within a year or an accounting cycle of a business. They are either settled by current assets or by introduction of new current liabilities.
Examples include Overdraft, Creditors, Short-term loans, Outstanding Expenses, etc. They are shown on the Liabilities side of the balance sheet.
They play a vital role in the control of working capital of a business, WC = CA – CL hence more current liabilities mean less working capital and vice-versa.
It is also the denominator when looking at a company’s current ratio thus playing an important part in its liquidity. It is imperative to keep a check on current liabilities.
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