Definition
The financial accounting term valuation of current liabilities refers to the approach used to quantify debt obligations that are reasonably expected to come due in a single operating cycle or one year. While most liabilities are recorded on the balance sheet at the present value of the future outlays of cash required to eliminate this debt, current liabilities are typically recorded at their full maturity amount.
Explanation
Current liabilities are defined as debts that must be paid within one year or one operating cycle, whichever is longer. Generally, companies are required to calculate the worth of liabilities at the present value of the future cash flows required to extinguish this debt.
In APB Opinion No. 21 (now superseded by FASB Accounting Standards Codification Topic 105), Interest on Receivables and Payables, these calculations were explicitly excluded.
This Opinion is not intended to apply to:
Receivables and payables arising from transactions with customers or suppliers in the normal course of business which are due in customary trade terms not exceeding approximately one year.
For this reason, current liabilities should be recorded on the balance sheet at their full maturity value. This guidance applies to two classes of current liabilities:
Determinable: includes those liabilities that can be precisely measured, including accounts and notes payable, dividends payable, and other short term debt obligations.
Contingent: includes debt obligations that depend on one or more future events to confirm the amount owed. Examples of these contingencies include litigation claims, pending assessments, warranty and guarantee losses, as well as coupons offered to customers.
Related Terms
liabilities, balance sheet, current liabilities, contingent debt obligations, determinable debt obligations
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