A current liability is an amount the business owes and expects to pay within twelve months. Trade creditors, short-term loans, output VAT due to SARS and statutory payroll amounts owing are all current liabilities. They sit on the balance sheet just above non-current liabilities.
What it means
Current liabilities are the short-term claims against a business's resources. They are matched against current assets to judge liquidity - whether the business can meet its near-term obligations as they fall due. A credit raises a liability; a debit (payment) clears it.
Where it fits in
Payroll is a major source of current liabilities. Each pay run raises PAYE, UIF and SDL owed to SARS, plus amounts due to medical aids and retirement funds, and net pay owed to staff until payday. These rest in the payroll liability account as current liabilities until the EMP201 and third-party payments settle them.
Key rules
- Due for settlement within twelve months.
- Includes creditors, short-term loans, VAT and payroll amounts owing.
- Unpaid PAYE, UIF, SDL and net pay are current liabilities until paid.
- Compared with current assets to measure working capital and liquidity.
