What are current liabilities?
Current liabilities are obligations a company expects to settle within 12 months of the reporting date — recorded on the balance sheet below current assets under IFRS (IAS 1) and US GAAP (ASC 210). They are the short-term claims against the business by creditors, suppliers and the tax authority.
Main components
- Accounts payable: trade credit owed to suppliers.
- Accrued expenses: incurred but not yet invoiced — wages payable, accrued interest, accrued taxes.
- Short-term debt: bank lines, commercial paper, current portion of long-term debt.
- Deferred revenue (current): cash received for performance obligations to be delivered within 12 months — very large in SaaS with annual prepay.
- Tax payable: corporate income tax accrued but not yet paid, VAT/sales-tax collected on behalf of authorities.
- Lease liabilities (current): next 12 months of IFRS 16 lease payments.
Liquidity ratios that use current liabilities
- Current ratio: current assets ÷ current liabilities. >1.5x is comfortable.
- Quick ratio: (current assets − inventory) ÷ current liabilities. >1.0x is healthy.
- Working capital: current assets − current liabilities. The short-term liquidity buffer.
Current liabilities in SaaS
SaaS businesses with annual billing accumulate large deferred-revenue balances — a “friendly” liability the business will work off by delivering service, not by paying cash. High deferred revenue as a share of total current liabilities is a positive signal: the business is collecting cash ahead of recognised revenue.
Do: reconcile current liabilities by category monthly; track deferred-revenue waterfall and the next-12-month settlement schedule.
Don’t: rely on deferred revenue as “free cash” — the obligation must be performed and the cost of delivery is real, just deferred.