Compare current liabilities, non-current liability, and contingent liabilities

Banking & FinanceFinance ManagementGrowth & Empowerment

Liabilities are current obligations which arise from the previous events. Settling these obligations causes the outflow of resources by decreasing their economic benefits. In simple words, liabilities are debt owed to others (may be a company or a person).

The main types of liabilities are current liabilities, non-current liabilities and contingent liabilities.

Current liabilities

These are also called short term liabilities. These liabilities are paid before 12 months or a year. Companies will have to look at their liquidity to guarantee these debts and ensure they can be met. Examples are accounts payable, income tax payable, interest payable, accrued expenses.

Non-current liabilities

These are also called long term liabilities. These play an important role in a company’s long term financing. It also determines a company’s long term solvency.

Companies will take long term debt to invest in new projects or to have immediate capital for purchasing capital assets. Examples are bonds payable, capital lease, deferred tax liabilities etc.

Contingent liabilities

These are potential liabilities. Outcome of these liabilities will depend on the future outcome. Examples are product warranties, lawsuits etc.

Comparison

The comparison between the current liabilities, non-current liability and contingent liabilities is explained below −

Sr.NoNon- Current liabilitiesCurrent liabilitiesContingent liabilities
1
Company’s financial obligations can pay off in more than a year.
Company’s financial obligations are written off within a year.
Financial obligations may or may not occur depending on future particular events.
2
These are recorded in the company’s balance sheet.
These are recorded in the company’s balance sheet.
It is recorded in the company’s profit and loss account and balance sheet (if occurrence is more than 50%).
3
Bonds, mortgage loans, long term debentures, derivative liabilities etc. are examples.
Banks overdraft, bills payable, outstanding payments etc. are examples.
Warranty, lawsuits etc. are examples.
raja
Updated on 08-Jul-2021 07:27:41

Advertisements