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Hey everyone.
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Today i'll be explaining the concept of current liabilities and taking up a question to further deepen your knowledge on this subject.
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Now, to start off, why is current liability important and how many types of liabilities are there? current liabilities are especially important for the company to see how officially they're able to deal with short -term obligations.
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And now when we talk short -term obligations, we're talking especially within one year.
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Now this is like the benchmark timeframe when talking about current liabilities.
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It's within one year, within the operating cycle, within the fiscal period.
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Any of those terms, you can make out that we're talking about current liabilities.
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By using the calculation for current liabilities, we can also determine the current ratio, which is a very fundamental ratio used by the company and investors to see how the company is able to cope with their short term.
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Obligations.
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Let me find right here.
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So yeah, here you go.
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Current ratio is basically found by dividing current assets with its current liabilities.
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Now that we have to distinguish what the current liability is and why it's important, let's dive into the different types of current liabilities.
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So to start off accounts payable.
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This is the most common one you will probably stumble upon, and it's usually a less formal arrangement as compared to notes payable, which is considered a long -term liability that you will see later on.
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A peltz payable is a financial obligation to suppliers.
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Let me find out here.
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To suppliers after purchasing products or services on credit.
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That occurs within the company's operating cycle, as i was talking about before.
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This agreement is usually sent in a form of an invoice that contains purchase details, credit terms, invoice date, and shipping arrangements.
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So as you can see here, all the information is clear.
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Clearly labeled out.
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So the date, the invoice number, right, the items that we purchased from the supplier, who we purchased it from the price.
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The invoice is like a short agreement that outlines all the details very nicely.
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Now the next current liability we will be talking about is unearned revenue, also known as deferred revenue.
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And this is an advanced payment a customer does for a product or service that has yet to be provided by the supplier.
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Now, on earn revenue right here is like advanced payments.
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So some examples include, you know, subscription services, gift cards, ticket sales.
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Like suppose you're buying tickets to go see a concert, right? so you will pay the 50 bucks online first and then you will go to the concert with the ticket.
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So you're just basically paying up front for the show, right? that's unearned revenue, basically.
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The next current liability we'll be talking about is taxes, right? tax is payable.
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This is an interesting one because there's two main taxes that we'll be looking at.
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Sorry here.
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Sales tax and income tax.
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So sales tax results from the sales of products or services to customers.
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And this is usually in a form of a percent of the subtotal.
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So that is really big...