What is the Difference Between Current and Long Term Liabilities?
🆚 Go to Comparative Table 🆚The difference between current and long-term liabilities lies in their repayment periods and impact on a company's financial position. Here are the main differences between the two:
- Repayment Period: Current liabilities are debts payable within one year, while long-term liabilities are debts payable over a longer period.
- Financial Impact: Current liabilities impact short-term liquidity, as they need to be settled within a year. Long-term liabilities, on the other hand, affect long-term solvency and the debt-to-equity ratio, which is the ratio of total liabilities to total equity.
Some common examples of current liabilities include:
- Sales taxes
- Payroll taxes
- Accounts payable
- Short-term loans
- Accrued liabilities
Examples of long-term liabilities include:
- Mortgages
- Long-term bank loans
- Bonds payable
- Rent, deferred taxes, and pension obligations
In summary, current liabilities are short-term obligations that a company expects to settle within one year, while long-term liabilities are debts due beyond one year. Both types of liabilities are recorded on a company's balance sheet and affect its financial position and liquidity differently.
Comparative Table: Current vs Long Term Liabilities
The main difference between current and long-term liabilities lies in the time frame for their payment. Current liabilities are debts that need to be paid within one year, while long-term liabilities are debts that are expected to be paid beyond one year. Here is a table summarizing the differences between current and long-term liabilities:
| Feature | Current Liabilities | Long-Term Liabilities |
|---|---|---|
| Time Frame | Due within one year or within the normal operating cycle | Due beyond one year |
| Examples | Accounts payable, wages or salaries payable, unearned revenues, short-term notes payable, and the current portion of long-term debt | Mortgages, long-term bank loans, bonds payable, deferred taxes, rent, and pension obligations |
| Balance Sheet Presentation | Separated from long-term liabilities and listed first on the balance sheet | Separated from current liabilities and listed after current liabilities on the balance sheet |
| Liquidity and Solvency Analysis | Impacts short-term liquidity, affecting working capital (difference between current assets and current liabilities) | Affects debt-to-equity ratio, which is the ratio of total liabilities to total equity |
| Interest Expense Calculation | Interest expense for short-term debt is calculated based on the principal amount outstanding and the interest rate | Interest expense for long-term debt is calculated based on the principal amount outstanding, the interest rate, and the term of the loan |
- Long-term vs Short-term Financing
- Liability vs Debt
- Long-term vs Short-term Interest Rates
- Liabilities vs Expenses
- Liability vs Equity
- Current vs Noncurrent Assets
- Liability vs Asset
- Liquidity vs Solvency
- Loan vs Debt
- Debt vs Equity
- Short Term vs Long Term Capital Gains
- Capital Account vs Current Account
- Present vs Current
- Deficit vs Debt
- Lending vs Borrowing
- Quick Ratio vs Current Ratio
- Short Term Planning vs Long Term Planning
- Current Yield vs Yield to Maturity
- Equity vs Debt Securities