Current and long term liabilities

Current and long term liabilities
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Current and long term liabilities
Current and long term liabilities are a core business focus for financial planning efforts. Current liabilities can such as payment of debt service on long term liabilities, quickly consume much cash compared to what company generates. Drawing credit line of a company in order to meet its debt payments may impact negatively on its short term liquidity position. This influences the future ability of the company to meet its collateral and cash flow needs. This paper seeks to compare and contrast current and long term liabilities (Dlabay & Burrow, 2007).
Current liabilities
Liquid cash or any form of money that business owners have to pay to their creditors with one financial year (12 months) of the balance sheet date is referred to as current liability. Examples of current liabilities include accounts payable, payroll, and notes payable. It is essential for the owners of businesses to stay alert on the current liabilities of their businesses that will be turned to liquid cash in 12 months in order to meet financial obligations (Wahlen, Jones & Pagach, 2013).
Long term liabilities
These are financial obligations of business owners that are due more than one financial year (12 months) of the balance sheet date. Examples of long term liabilities include bonds payable, pensions, and long term rent. Long term liabilities should be offset by company’s long term assets. This makes the long term liquidity of the company positive, and the probability that the company will be able to meet its financial obligations is good. This infers that the company has a good potential to remain in a going concern (Wahlen, Jones & Pagach, 2013).
In conclusion, both current liabilities and long term liabilities are financial obligations of business owners. Both of them determine the credibility of the company. The company liquidity, both short run and long term also depends on them (Dlabay & Bur...