What are other current liabilities?

( This post explains,  the difference between other current liabilities and the current liabilities  for the purpose of working capital appraisal and items like contingent liabilities, netting of current liabilities and current assets.)

The current liabilities are those dues, to be settled within 12 months from reporting date, including overdraft and loan installments payable within 12 months.  The facilities like Cash Credit, Overdraft, Packing credit, short term loans etc. availed from banks, the Creditors for the purchase of raw materials and consumable spares, Advance received from customers, Statutory liabilities etc. are the examples of credit liabilities. The other current liabilities shown in the balance sheet are items like short-term borrowings, unsecured loans, dividend payable, installment of Term Loan/DPG, public deposits/debentures due for payment within a year, etc.

Trade Creditors and Sundry Creditors

The figures of ‘Trade Creditors’ appearing on the balance sheet is normally a consolidated figure of all creditors. However, the term of ‘trade creditors’  usually refers to the supplier of goods to a company and in this case, the amount billed shall be paid by the buyer company for the goods received in the ordinary course of business. Unlike the figures of sundry creditors, the figures of trade creditors shall not be taken into account for computation of working capital finance.

The Sundry Creditors are the supplier of goods who supply goods or services or consumable items to a company on the credit basis. Hence, it is necessary that the credit purchases of raw materials are to be separated from trade creditors and that credit purchase only to be classified as current liabilities for assessment of working capital finance.

Any statutory obligations such as PF liabilities, provision for taxation, and obligation towards workers under statutory obligation are classified as current liabilities. Disputed liabilities in respect of income tax, customs, electricity charges and excise liabilities which are shown as a contingent liability or by way of note to the balance sheet need not be treated as a current liability for calculating the permissible bank finance. Where the specific provisions have not been made for such disputed liabilities and the liabilities if arise, payment to be made out of general reserves, then such estimated amount of disputed liability should be treated as current liabilities.

The items like bills purchased or discounted, which are usually classified under contingent liabilities or under notes attached to the balance sheet. However, for the purpose of qualitative analysis of current liabilities, this item to be added to current liabilities (borrowings) and simultaneously to be added to current assets under the head ‘Trade receivables’.

For the purpose of computing working capital requirements, the bank borrowings in the balance-sheet shall be excluded from the current liabilities.

Netting of Current Liabilities and current assets

Banks are permitted by RBI in netting the following current liabilities and current assets for the purpose of working capital assessment.

1. Tax provisions and advance payment of Income tax.
2. Excise duty provision and investment in Government and Trustee Securities or Fixed deposits with the bank.
3. Advance payment received (ex: vehicles booking with automobiles companies) and when same is invested in approved securities.
4. Advance payments or progress payments received by capital goods manufacturing companies and work-in-process.

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info on how to filter other non-current asset items which were clubbed with current assets in the balance sheet