Current Liabilities

Current liabilities of a company include:
Accounts Payable, Notes Payable, Interest Payable, Wages Payable and other obligations the company expects to pay within the next year or current operating cycle, whichever is longer.

Current Assets

Current assets of a company include: 

Cash, Accounts Receivable, Inventories, Notes Receivable, and Short-term investments and other assets the company intends to convert to cash within the next year or current operating cycle, whichever is longer.

Debits and Credits in Accounting

In accounting, debits and credits have particular meanings.

If you have a bankcard you are accustomed to debiting your card when you make a purchase. Likewise you are accustomed to crediting your account by depositing money into the bank or making a payment on your account.

In accounting, this is not the meaning of debit and credits. Everyone gets confused because of a preexisting notion of what the words mean. The important point to remember is:

Debit means left as in the left side of the T-Account.

Credit means right as in the right side of the T-Account.

Sole Proprietor

The Sole Proprietor is the simplest form of business organization that is also the most popular due to its ease in establishing. However, the sole proprietorship affords the least protection from liabilities for the owner. Most small localized businesses are sole proprietorship such as beauticians, auto mechanics, carpenters, interior decorators, and landscapers. Sole proprietors generally exist as long as the owner has an interest in the business. This type of business organization lacks any true ability to sell or pass on to family members. The sole proprietor will also have difficulty finding financing as the owner is responsible for the debts of the business.

What is Current Ratio?

Current Ratio

Ratios are used to measure the performance of a company.

The Current Ratio is used to determine the liquidity of a company.
To determine the Current Ratio  divide Current Assets by Current Liabilities.

Current Ratio = Current Assets / Current Liabilities

Current assets are items that include cash or can be converted to cash in a short time such as inventory, accounts receivables, and notes receivable.

Current Liabilities are obligations that a company expects to pay within a short time. Current liabilities include accounts payable, and currently due notes payable among other obligations.


Why does it matter? A company's current ratio is an indication of their ability to pay upcoming expenses. A very low ratio means that the company is struggling to stay ahead of its debts and may not be able to cover them all in a  timely matter. Among current assets is cash, and when it comes to paying obligations, cash is king.