
Concept explainers
Concept Introduction:
A liability can be defined as an obligation which a person or a company needs to pay which arises during the course of the business.
A liability can be short term or long term depending upon the time period in which it is required to be paid. If a liability is required to be paid with in a period of 12 months i.e. one year it will be treated as current liability and if a liability is required to be paid beyond a period of 12 months or one operating cycle, it will be treated as long term liability.
Difference between a current and long-term liability

Explanation of Solution
A liability can be defined as an obligation which a person or a company needs to pay which arises during the course of the business.
A current liability can be defined as the liability that is required to be paid within a period of 12 months or one operating cycle. Example accounts payable, short term notes payable.
While a long term liability can be defined as the liability that is required to be paid in a period of more than 12 months or one year or one operating cycle. Example − Bonds issued for 5 years, loan taken from bank to be paid in 3 years etc.
The difference between a current and long-term liability can be elaborated as under −
Basis | Current Liability | Long-term Liability |
Time period | It is required to be paid with a period of 12 months or one operating cycle of the | It is required to be paid beyond a period of 12 months or one operating cycle of the balance sheet. |
Examples | Example are accounts payable, notes payable, wages and salaries, interest, dividends, short term loans etc. | Examples are leases, bonds issued for more than one year, pension obligations, |
Recording in the balance sheet | Recorded in the balance according to the occurrence of their due dates in the current liability section. | They are recorded in a separate section under the head long-term liabilities in the balance sheet. |
Thus, it can be concluded that, the main difference between current and long term liability is that a current liability is required to be paid within a period of 12 months while, a long term liability is required to be paid beyond a period of 12 months.
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