Current Liabilities

Current liabilities include all obligations that the firm has coming due in the next accounting period. These generally include:

• Accounts Payable - representing credit received from suppliers and other vendors to the firm. The value of accounts payable represents the amounts due to these creditors. For this item, book and market value should be similar.

• Short term borrowing - representing short term loans (due in less than a year) taken to finance the operations or current asset needs of the business. Here again, the value shown represents the amounts due on such loans, and the book and market value should be similar, unless the default risk of the firm has changed dramatically since it borrowed the money.

• Short term portion of long term borrowing - representing the portion of the long term debt or bonds that is coming due in the next year. Here again, the value shown is the actual amount due on these loans, and market and book value should converge as the due date approaches.

• Other short-term liabilities - which is a catch-all component for any other short term liabilities that the firm might have, including wages due to its employees and taxes due to the government.

Of all the items on the liability side of the balance sheet, absent outright fraud, current liabilities should be the one for which the accounting estimates of book value and financial estimates of market value are the closest.

Lessons From The Intelligent Investor

Lessons From The Intelligent Investor

If you're like a lot of people watching the recession unfold, you have likely started to look at your finances under a microscope. Perhaps you have started saving the annual savings rate by people has started to recover a bit.

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