{"id":278,"date":"2024-09-06T16:48:13","date_gmt":"2024-09-06T16:48:13","guid":{"rendered":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/chapter\/why-it-matters-current-liabilities\/"},"modified":"2024-09-06T16:48:13","modified_gmt":"2024-09-06T16:48:13","slug":"why-it-matters-current-liabilities","status":"publish","type":"chapter","link":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/chapter\/why-it-matters-current-liabilities\/","title":{"raw":"Why It Matters: Current Liabilities","rendered":"Why It Matters: Current Liabilities"},"content":{"raw":"\nOne of the key metrics that analysts, investors, and management watch is working capital, which is the difference between current assets and current liabilities.\n\nFor example, if you look at the annual report for The Home Depot, Inc. on page 33, you\u2019ll find the balance sheet that shows $19.810 billion in current assets and $18.375 in current liabilities on February 2, 2020 (the end of the fiscal year). Therefore, working capital was $1.435 billion. That\u2019s the difference between the most liquid assets and the bills that have to be paid soon, and it may seem like a lot of money, but from the statement of earnings on the next page, we see that operating expenses for the year were almost $2 billion per month.\n\nYou\u2019ve already taken a good look at current assets, from cash and cash equivalents, inventory, accounts receivable, marketable securities, and other assets such as prepaid expenses. In this module, we\u2019ll take a closer look at the common categories of current liabilities and you\u2019ll explore how to recognize a current liability and how to record them.\n\nHere is the current liability section from The Home Depot annual report:\n\n\n\n\n\n\n\n\n\n
THE HOME DEPOT INC.\nCONSOLIDATED BALANCE SHEET\n<\/caption>\n
in millions, except per share data<\/em><\/th>\nFebruary 2, 2020<\/th>\nFebruary 3, 2019<\/th>\n<\/tr>\n<\/thead>\n
Subcategory, <\/span>Current liabilities:<\/td>\n<\/tr>\n
     Short term debt<\/td>\n$     974<\/td>\n$     1,339<\/td>\n<\/tr>\n
     Accounts payable<\/td>\n7,787<\/td>\n7,755<\/td>\n<\/tr>\n
     Accured salaries and related expenses<\/td>\n1,494<\/td>\n1,506<\/td>\n<\/tr>\n     Sales taxes payable<\/td>\n605<\/td>\n656<\/td>\n\n\n     Deferred revenue<\/td>\n2,116<\/td>\n1,782<\/td>\n\n\n     Income taxes payable<\/td>\n55<\/td>\n11<\/td>\n\n\n     Current installments of long-term debt<\/td>\n1,839<\/td>\n1,056<\/td>\n\n\n     Current operating lease liabilities<\/td>\n828<\/td>\n---<\/td>\n\n\n     Other accrued expenses<\/td>\n2,677<\/td>\n2,611<\/td>\n\n
       Total current liabilities<\/td>\nSingle line<\/span>\n18,375<\/td>\nSingle line<\/span>\n16,716<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n\n \n\n\nThe categories we\u2019ll be examining in the following sections include accounts payable, sales tax payable, income taxes payable, deferred revenue and accrued expenses, and short-term debt, including the current portion of long-term debt.\n","rendered":"

One of the key metrics that analysts, investors, and management watch is working capital, which is the difference between current assets and current liabilities.<\/p>\n

For example, if you look at the annual report for The Home Depot, Inc. on page 33, you\u2019ll find the balance sheet that shows $19.810 billion in current assets and $18.375 in current liabilities on February 2, 2020 (the end of the fiscal year). Therefore, working capital was $1.435 billion. That\u2019s the difference between the most liquid assets and the bills that have to be paid soon, and it may seem like a lot of money, but from the statement of earnings on the next page, we see that operating expenses for the year were almost $2 billion per month.<\/p>\n

You\u2019ve already taken a good look at current assets, from cash and cash equivalents, inventory, accounts receivable, marketable securities, and other assets such as prepaid expenses. In this module, we\u2019ll take a closer look at the common categories of current liabilities and you\u2019ll explore how to recognize a current liability and how to record them.<\/p>\n

Here is the current liability section from The Home Depot annual report:<\/p>\n\n\n\n\n\n\n\n\n\n
THE HOME DEPOT INC.
\nCONSOLIDATED BALANCE SHEET
\n<\/caption>\n
in millions, except per share data<\/em><\/th>\nFebruary 2, 2020<\/th>\nFebruary 3, 2019<\/th>\n<\/tr>\n<\/thead>\n
Subcategory, <\/span>Current liabilities:<\/td>\n<\/tr>\n
     Short term debt<\/td>\n$     974<\/td>\n$     1,339<\/td>\n<\/tr>\n
     Accounts payable<\/td>\n7,787<\/td>\n7,755<\/td>\n<\/tr>\n
     Accured salaries and related expenses<\/td>\n1,494<\/td>\n1,506<\/td>\n<\/tr>\n<\/tbody>\n
       Total current liabilities<\/td>\nSingle line<\/span>
\n18,375<\/td>\n		Single line<\/span>
\n16,716<\/td>\n<\/tr>\n<\/table>\n

 <\/p>\n

The categories we\u2019ll be examining in the following sections include accounts payable, sales tax payable, income taxes payable, deferred revenue and accrued expenses, and short-term debt, including the current portion of long-term debt.<\/p>\n","protected":false},"author":6,"menu_order":1,"template":"","meta":{"_candela_citation":"[{\"type\":\"original\",\"description\":\"Why It Matters: Current Liabilities\",\"author\":\"Joseph Cooke\",\"organization\":\"Lumen Learning\",\"url\":\"\",\"project\":\"\",\"license\":\"cc-by\",\"license_terms\":\"\"}]","pb_show_title":"on","pb_short_title":"","pb_subtitle":"","pb_authors":[],"pb_section_license":""},"chapter-type":[],"contributor":[],"license":[],"part":277,"module-header":"","content_attributions":[{"type":"original","description":"Why It Matters: Current Liabilities","author":"Joseph Cooke","organization":"Lumen Learning","url":"","project":"","license":"cc-by","license_terms":""}],"internal_book_links":[],"video_content":null,"cc_video_embed_content":{"cc_scripts":"","media_targets":[]},"try_it_collection":null,"_links":{"self":[{"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/pressbooks\/v2\/chapters\/278"}],"collection":[{"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/pressbooks\/v2\/chapters"}],"about":[{"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/wp\/v2\/types\/chapter"}],"author":[{"embeddable":true,"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/wp\/v2\/users\/6"}],"version-history":[{"count":0,"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/pressbooks\/v2\/chapters\/278\/revisions"}],"part":[{"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/pressbooks\/v2\/parts\/277"}],"metadata":[{"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/pressbooks\/v2\/chapters\/278\/metadata\/"}],"wp:attachment":[{"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/wp\/v2\/media?parent=278"}],"wp:term":[{"taxonomy":"chapter-type","embeddable":true,"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/pressbooks\/v2\/chapter-type?post=278"},{"taxonomy":"contributor","embeddable":true,"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/wp\/v2\/contributor?post=278"},{"taxonomy":"license","embeddable":true,"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/wp\/v2\/license?post=278"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}