What you will learn to do: Define current liabilities

Liabilities are obligations to pay cash, provide services, or deliver goods at some future time.

FASB’s Concept Statement No. 6, in place for more than 20 years, defines liabilities as “probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events.”

Most balance sheets divide liabilities into current liabilities and long-term liabilities.

Let’s zoom in on The Home Depot balance sheet for the fiscal year ended February 2, 2020:

See the balance sheet long description here.

Current liabilities are obligations that (1) are payable within one year or one operating cycle, whichever is longer, or (2) will be paid out of current assets or create other current liabilities.

Long-term liabilities are obligations that do not qualify as current liabilities.