Short-term debts make up a company's current liabilities.
The current liabilities of a company are made up of its short-term debts , which must be paid within a period of less than twelve months . It is, therefore, the short-term liability that is current since there is no intention for it to remain in the company for a long time and it is in constant rotation or movement.
Commercial credits (granted by suppliers and creditors, arise due to the temporal distance between the moment of acquiring a good or service and the moment of making the payment), bank credits (granted by financial entities , they can be loans, lines of credit or bill discounts), company promissory notes (which constitute short-term financing) and factoring (the sale of customer debts to other companies) are part of current liabilities.
It is worth mentioning that in the field of accounting, short term (generally expressed as CP ) is understood to be the period of time that does not exceed the end of the current fiscal year. Within the items of current liabilities, two classifications are recognized, which group together some of the situations expressed in the previous paragraph: spontaneous and express liabilities.
Spontaneous current liabilities
The spontaneous liability is the cost-free financing that the production cycle itself generates automatically. During the exploitation cycle, each company carries out its usual activities of sales, purchases, and pays its taxes; and all of them are normal sources of spontaneous passive.
Transactions with suppliers result in accounts that must be paid for purchases made on credit. The use of services and the hiring of employees carry a series of obligations, taxes that the company must pay. Finally, there are certain general expenses, such as equipment repairs and fees for specific jobs.
Current liabilities are in constant movement.
Financing with banks
Any financing that is negotiated with banks or financial institutions, whose payment must be made in the short term and that entails the payment of interest, is part of express liabilities (also known as financial debt ). In other words, it is any obligation that arises from operations that have been expressly contracted, that is, that have not been generated automatically by the production cycle.
Among the most common sources of this type of current liabilities are loans whose installments mature in the short term, commercial discount lines and credit policies. It is important to note that the term debt should be used to refer to any explicit cost financing (for which interest must be paid) both short or long term, and credit to refer to any short-term debt (that is, a financial debt that matures within the current financial year ).
Finally, this use of credit should not be confused with the abbreviation of credit policy , since the latter concept is an authorization granted by banks to make an overdraft, with a certain limit.
Concepts related to current liabilities
Fixed liabilities or long-term liabilities , on the other hand, are made up of obligations and debts that are due within a period of more than twelve months from the date of contracting. Contingent liabilities , for their part, are linked to obligations with transactions with a certain degree of uncertainty and that may be presented as the consequence of a future event.
Other types of liabilities are deferred liabilities (with obligations whose application is linked to results), assumed liabilities (obligations borne by others that a company assumes on its own after signing an agreement ) and titled liabilities ( documented debts owed by state agencies).