Current liabilities are typically considered operating items on a company's balance sheet because they represent short-term obligations that are related to the day-to-day operations of the business.
However, there may be (unusual) circumstances where some current liabilities are not considered operating items. For example, if a company takes on short-term debt to finance a one-time investment or project that is not part of its normal operations.
Let's see the common Current Liabilities and some cases when they're not operating.
🔷️ Accounts payable
this represents amounts owed to suppliers or vendors for goods or services received in the normal course of business. For example, a retailer may have accounts payable to its merchandise suppliers.
When is it non-operating?
When the amounts owed to suppliers or vendors are related to non-operating activities, such as real estate investments.
🔷️ Notes payable
these are short-term promissory notes that are used to finance working capital needs, such as purchasing inventory or funding accounts receivable: these activities are essential to a company's normal operations.
When is it non-operating?
For example in case they're related to a one-time event that is not related to the ongoing operations: we can think about hosting a major conference, public event or team building projects.
🔷️ Accrued expenses
these are expenses that have been incurred but not yet paid, such as salaries, rent and utilities. These are ongoing operating expenses that are necessary for the company to continue its operations.
When is it non-operating?
When the expenses are related to non-operating events such as a merger or acquisition.
🔷️ Short-term loans and lines of credit
just like notes payable, but with other mechanisms, they are typically used to finance working capital needs, such as purchasing inventory or funding accounts receivable.
When is it non-operating?
When the loans or credit arrangements are used for non-operating activities, such as investing in other companies or purchasing real estate for investment purposes.
🔷️ Current portion of long-term debt
this represents the portion of long-term debt that is due within the next 12 months. The company must continue to make payments on this debt as part of its ongoing operations.
When is it non-operating?
For example when a company incurs debt to pay for a legal settlement or judgment that is not related to its normal business operations.
🔷️ Unearned revenue
this represents payments received in advance for goods or services that have not yet been provided. For example, a company may receive payment in advance for a subscription service it provides on an ongoing basis.
When is it non-operating?
For example when the payments received in advance are related to one-time consulting project, and consulting is not a services that's regularly provide by the company.
🔷️ Income taxes payable
these are taxes owed on the company's income earned during the current period. The payment of taxes is an ongoing operating expense.
When is it non-operating?
Income taxes may be considered non-operating if they are related to one-time events, such as the sale of a subsidiary or a major restructuring.
🔷️ Customer deposits
these are payments received from customers for orders that have not yet been filled or services that have not yet been provided. These are essential to a company's operating activities, as they represent future revenue that will be earned.
When is it non-operating?
When the deposits are related to extraordinary activities, such as a lease of a piece of the company's machinery to another company.
🔷️ Dividends payable
these are dividends declared by a company's board of directors but not yet paid to shareholders. Payment of dividends may be considered part of a company's normal operating activities.
When is it non-operating?
Never... they're part of the business, even through it's an "ambiguous" expenses, because it doesn't go through the income statement.
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