Current vs. Long-Term

Have you ever looked at your Chart of Accounts (COA) in your accounting application? Did you notice that some assets and liabilities are classified as current, while others are classified as long-term? Why is that? Well, this is standard accounting practice.

Quoting the definition, “Current assets are balance sheet accounts that represent the value of all assets that can reasonably expect to be converted into cash within one year.” Conversely, as explains, “A long-term asset is an asset that will not turn into cash or be consumed within one year of the date shown in the heading of the balance sheet.”

As for current liabilities, again turning to, “Current liabilities are a company’s debts or obligations that are due within one year, appearing on the company’s balance sheet and include short term debt, accounts payable, accrued liabilities and other debts. Essentially, these are bills that are due to creditors and suppliers within a short period of time.” Long-term liabilities “form part of a section of the balance sheet that lists obligations of the company that become due more than one year into the future. Long-term liabilities include items like debentures, loans, deferred tax liabilities and pension obligations.

And there you have it!

Posted in Accounting Principles.