Current and non-current liabilities. What they are and differences

Liabilities are debts, i.e. obligations assumed by the company to third parties other than its owners, for example: suppliers, various creditors, banks, the government, employees, etc. 

The difference between current and non-current liabilities lies in the term to repay the liabilities. If they exceed 12 months after year-end, they are considered non-current, otherwise they are current.

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What are the Current Liabilities of a Company?

Current liabilities are liabilities that must be paid within 12 months after the end of the business year .

Types of Current Liabilities

Current liabilities contain items that serve to group the accounting accounts that represent the debts to be paid in the short term by the company, as follows:

CURRENT LIABILITIES

I - Trade and other accounts payable. Includes: suppliers and sundry creditors.

II - Short-term debt with group and associated companies.

III - Short-term debts. Includes: debts with credit institutions, creditors for financial leases, social security debts, tax charges, other short-term debts.

IV - Short-term accruals. Includes receivables collected in advance and accrual accounts.

V - Short-term provisions.

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Examples of Current Liabilities

Examples of current liabilities are as follows: 

• Negotiable turnover debts: suppliers, sundry creditors, short-term debts with associated companies, debts with credit institutions and banks.
• Non-negotiable or partially negotiable revolving debts: social security debts, tax charges, credits collected in advance and their positive unearned interest (subtracted).

Negotiable debts are those that can be refinanced through an additional cost expressed in interest or other type of financial cost. Non-negotiable debts, due to the characteristics of the obligations, do not allow refinancing or the extension of the repayment term. 

Related content:

• Solvency ratios. What they are and how to calculate them
• Cost structure of a company
• Financial risks. Types and how to manage them

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What are the Non-Current Liabilities of a Company?

Non-current liabilities are liabilities that must be settled after 12 months from the end of the fiscal year .

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Types of Non-Current Liabilities

Non-current liabilities contain items that serve to group the accounting accounts that represent the company's long-term debts to be paid, as follows:

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NON-CURRENT LIABILITIES

I - Deferred Tax Liabilities.

II - Long-term debt with group and associated companies.

III - Long-term debts. Includes: debts with credit institutions, creditors for financial leases, social security debts, tax charges, other long-term debts.

IV - Long-term accruals. Includes receivables collected in advance and accrual accounts.

V - Long-term provisions.

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Examples of Non-Current Liabilities

Non-current liabilities, in terms of accounting accounts, are similarly composed of current liabilities. Usually, they are debts with similar characteristics, only cancellable in the long term.

In this case, the most important thing is to analyze the debts that may generate solvency problems in the assets, derived from the use of such assets as common collateral for creditors, for example: mortgages, pledges, leasing, among others.

It is also essential to analyze current liabilities, for example, when it comes to Due Diligence procedures, as the company may be committed in the very long term to certain external sources of financing, which generate obligations for the company to the detriment of its beneficiaries.

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Differences between Current and Non-Current Liabilities

It should be noted that current and non-current liabilities have other substantial differences, such as the following:

• Current Liabilities: Term of cancellation of less than one year.
• Non-Current Liabilities: Term of cancellation greater than one year.

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• Current Liabilities: These are short-term debts.
• Non-Current Liabilities: These are long-term debts.

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• Current Liabilities: The company is obliged to pay off debts in the short term, or in some of them, to refinance them to extend their repayment term.
• Non-Current Liabilities: The company is obliged to cancel debts in the long term, but may also opt for their total or partial early cancellation, if convenient.

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• Current liabilities: They become non-current when current liabilities are refinanced.
• Non-Current Liabilities: They become current when it is decided to renegotiate interest and shorten the repayment term. Fundamentally, debts maturing within the next 12 months after the end of the fiscal year become non-current each year.

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• Current Liabilities: They are used to calculate the financial gap, general indebtedness and short-term indebtedness.
• Non-Current Liabilities: These are used to calculate the overall indebtedness and solvency of the company, especially in the case of mortgage, pledge or similar obligations.