Legal Definitions - current liability

A current liability refers to a financial obligation that a business or individual expects to settle or pay off within one year from the current date. These are short-term debts or duties that typically require the use of current assets (like cash) or the creation of another short-term obligation to resolve them.

Here are some examples to illustrate current liabilities:

• Unearned Revenue for a Subscription Service: Imagine a software company that sells annual subscriptions to its users. When a customer pays for a full year upfront, the company has not yet provided the service for the entire year. The portion of that payment corresponding to the services yet to be delivered within the next 12 months is considered unearned revenue. This is a current liability because the company has an obligation to provide the software service over the subscription period, and that obligation will be fulfilled within the year.

• Accrued Wages: Consider a restaurant that pays its employees every two weeks. At the end of a financial reporting period (e.g., the end of the month), there might be several days of work for which employees have earned wages but have not yet been paid. The restaurant owes these wages, and they will be paid on the next payday, which is typically within a few days or weeks. This obligation for unpaid, earned wages is an accrued expense and a current liability because it must be settled very soon.

• Sales Tax Payable: A clothing boutique collects sales tax from its customers on behalf of the state government. The money collected as sales tax does not belong to the boutique; it is held in trust until it is remitted to the tax authorities. Since these collected taxes are typically due to the government on a monthly or quarterly basis, the amount owed at any given time is a current liability for the boutique, as it must be paid within the next year.