Examples of Current vs. Long-Term Liabilities: 3 Practical Examples That Actually Make Sense

Textbook definitions are fine, but the best examples of current vs. long-term liabilities come from real situations where cash is tight, lenders are watching, and management is making tradeoffs.

On any balance sheet, liabilities are simply what the company owes. The split is about when it has to pay:

• Current liabilities: due within 12 months.
• Long-term liabilities: due in more than 12 months.

The gray area—and where people mess this up—is mixed items like term loans, leases, and bonds that stretch over several years. In every good example of current vs. long-term liabilities, you’ll see the same pattern: the next 12 months’ payments sit in current liabilities, and the rest sits in long-term liabilities.

Let’s walk through three practical business scenarios and then layer in more examples so you can spot these patterns in any set of financials.

Example 1: E‑commerce startup – credit cards, payroll, and a 5‑year bank loan

Imagine a fast-growing e‑commerce company based in the U.S. It sells consumer electronics online and just closed a Series A round. The founder is obsessing over runway, but the investors are staring at the balance sheet.

Here are some realistic numbers (all USD):

• Revolving credit card balance: $40,000
• Accounts payable to suppliers: $120,000
• Accrued payroll and payroll taxes: $30,000
• Unearned revenue (gift cards and preorders): $50,000
• 5‑year bank term loan: $500,000 at 7%

How this breaks out between current vs. long-term liabilities

For this e‑commerce company, examples of current vs. long-term liabilities are everywhere on a single page of the balance sheet.

Current liabilities examples include:

• Accounts payable – $120,000
  Invoices from suppliers for inventory, due in 30–60 days. Classic current liability.

• Credit card balance – $40,000
  Revolving debt that’s either due monthly or callable on short notice. In practice, this sits fully in current liabilities.

• Accrued payroll and payroll taxes – $30,000
  Employees have already earned the wages, and payroll tax is owed to the government. Both will be paid out within days or weeks.

• Unearned revenue – $50,000
  Customers bought gift cards and preordered products. The company owes goods or services, not cash, but from an accounting standpoint, this is a current liability because the obligation will be settled within a year.

• Current portion of 5‑year bank loan – about $100,000
  Let’s say the company repays the loan in equal annual principal payments over 5 years: $100,000 each year. The next 12 months’ principal is a current liability, even though the full loan is a 5‑year deal.

Long-term liabilities examples include:

• Long-term portion of bank term loan – about $400,000
  The remaining principal due after the next 12 months—years 2 through 5—is a long-term liability.

Notice what’s happening: the exact same loan is split between current and long-term liabilities. This is one of the best examples of current vs. long-term liabilities in practice, because it shows how timing—not type of lender—drives classification.

Why investors care about this split

For this startup, investors are watching:

• Current ratio (Current Assets / Current Liabilities) to judge short-term liquidity.
• Debt service coverage to see whether the business can handle interest and principal due in the next year.

If the company misclassified the entire $500,000 loan as long-term, the current ratio would look artificially strong. If it dumped the entire loan into current liabilities, the company might look distressed when it isn’t.

Accurate examples of current vs. long-term liabilities are not academic—they directly affect how lenders, investors, and even suppliers judge risk.

Example 2: Manufacturing company – equipment loans, leases, and bonds

Now picture a mid-sized U.S. manufacturing company that produces metal components for the auto industry. It’s capital-intensive, so its balance sheet is heavier on debt.

Suppose the liabilities section includes:

• Accounts payable to raw material suppliers: $600,000
• Short-term bank line of credit: $300,000 (renewable annually)
• Current portion of equipment loan: $250,000
• Long-term portion of equipment loan: $750,000
• 10‑year corporate bond: $5,000,000
• Long-term lease liability for factory building: $2,000,000

Examples of current liabilities in a real manufacturing business

In this scenario, examples of current vs. long-term liabilities: 3 practical examples jump out immediately on the short-term side:

• Accounts payable – $600,000
  Vendors expect payment in 30–90 days. This is the textbook example of a current liability.

• Short-term line of credit – $300,000
  The line renews annually and is technically payable on demand. It sits entirely in current liabilities.

• Current portion of equipment loan – $250,000
  The amount of principal due in the next 12 months on a multi-year equipment loan.

Together, these three items are the best examples of current liabilities that affect the company’s ability to buy raw materials, pay interest, and keep the lights on.

Examples of long-term liabilities: bonds and leases

On the other side, the same balance sheet gives you clean examples of long-term liabilities:

• Long-term portion of equipment loan – $750,000
  Principal due beyond the next year.

• 10‑year corporate bond – $5,000,000
  Unless the bond is maturing within 12 months, the entire principal remains a long-term liability. The portion maturing in the next year would be reclassified to current as the date approaches.

• Long-term lease liability – $2,000,000
  Under modern lease accounting rules (see FASB guidance summarized by the U.S. GAO), many leases now create both a right-of-use asset and a lease liability. The lease payments due after one year are recorded as a long-term liability.

Again, a single obligation—the lease—gets split into current and long-term portions. The next 12 months of lease payments sit in current liabilities; the rest stay in long-term.

Why this matters in 2024–2025

In the 2022–2024 period, U.S. interest rates climbed sharply from near-zero levels, which hit manufacturers particularly hard. Higher rates mean:

• Refinancing long-term bonds is more expensive.
• Variable-rate equipment loans and lines of credit increase interest expense.

The classification of current vs. long-term liabilities becomes more sensitive, because the portion due in the next 12 months is where the higher interest cost bites first. Analysts are looking closely at short-term debt loads when evaluating credit risk.

Example 3: Professional services firm – taxes, deferred revenue, and long-term notes

Now let’s move to a less asset-heavy business: a U.S.-based consulting firm that advises healthcare providers. Its liabilities look very different from manufacturing, but the logic of current vs. long-term is exactly the same.

Assume the firm’s balance sheet shows:

• Accounts payable: $90,000
• Accrued bonuses: $150,000
• Accrued income taxes payable: $80,000
• Deferred revenue from multi-month consulting contracts: $200,000
• 3‑year note payable to a former partner: $600,000

Current liabilities examples in a services context

Here, the most important examples of current liabilities are:

• Accounts payable – $90,000
  Vendor invoices for software, travel, and subcontractors.

• Accrued bonuses – $150,000
  Employees have earned performance bonuses that will be paid out within the next 12 months. These are current liabilities because the obligation already exists.

• Accrued income taxes – $80,000
  The firm owes taxes based on profits already earned. The IRS expects payment within the year, so this sits in current liabilities. For background on how business tax obligations work, see the IRS’s guidance on employment and business taxes.

• Deferred revenue – $200,000
  Clients have prepaid for consulting work that will be delivered over the next few months. The firm owes services, not cash, but in accounting terms this is a current liability because the service obligation will be satisfied within a year.

Long-term liability example: partner buyout

The standout long-term liability here is the 3‑year note payable to a former partner – $600,000.

• The principal due in the next 12 months is a current liability.
• The remaining principal is a long-term liability.

This is a clean example of current vs. long-term liabilities in a professional services firm. As the note ages, more of it shifts from long-term to current each year, even though the total amount owed might not change much.

More real examples of current vs. long-term liabilities you’ll actually see

Beyond those three scenarios, here are additional real examples of current vs. long-term liabilities that show up across industries.

More current liability examples

These examples of current liabilities are common on modern balance sheets:

• Sales tax payable
  Retailers and e‑commerce companies collect sales tax on behalf of state and local governments. Until they remit it, it’s a current liability. Rules vary by state, but the logic is the same: short-term obligation, current classification.

• Short-term portion of long-term leases
  Under updated lease accounting standards (ASC 842 in the U.S.), even office leases create a short-term and long-term liability. The next 12 months of lease payments sit in current liabilities.

• Short-term notes payable
  Any note or loan that matures within 12 months, including bridge loans used in M&A deals or temporary working capital facilities.

• Dividends payable
  Once the board declares a dividend, the company owes shareholders that cash, usually within a few weeks. Until it’s paid, that’s a current liability.

More long-term liability examples

On the long-term side, examples include:

• Long-term bank loans
  Multi-year term loans for acquisitions, plant expansions, or major equipment purchases. Only the portion due after 12 months is a long-term liability.

• Pension and other post-employment benefit obligations
  For companies with defined benefit plans, the actuarial present value of future obligations is a long-term liability. The U.S. Department of Labor and the Employee Benefits Security Administration provide extensive guidance on how these obligations are managed.

• Deferred tax liabilities
  Timing differences between tax and accounting rules can create long-term deferred tax liabilities. These often relate to depreciation methods or revenue recognition.

• Long-term lease obligations
  Multi-year real estate leases or equipment leases that extend beyond 12 months, net of the current portion.

These additional items round out the best examples of current vs. long-term liabilities you’re likely to see whether you’re reading a startup’s internal report or a Fortune 500 10‑K.

How classification affects ratios and decision-making

Once you have clear examples of current vs. long-term liabilities in mind, the impact on analysis becomes obvious.

• Liquidity ratios
  Current liabilities feed directly into the current ratio and quick ratio. If a company pushes too much short-term debt onto its balance sheet, these ratios deteriorate, even if total debt doesn’t change.

• Solvency and leverage ratios
  Long-term liabilities drive metrics like debt-to-equity and long-term debt to total capitalization.

• Covenants and lender behavior
  Banks often set covenants based on both short-term and long-term measures. A company that misclassifies a significant note payable could accidentally trip a covenant.

In the 2024–2025 environment, where interest rates remain higher than the 2010s average and credit conditions are tighter, investors and lenders are scrutinizing short-term obligations more aggressively. That’s why having clean, accurate examples of current vs. long-term liabilities—3 practical examples and several more supporting ones—matters for anyone reading or preparing financial statements.

For broader context on how liabilities fit into the overall financial reporting framework, the Financial Accounting Standards Board (FASB) and organizations like the AICPA provide detailed technical guidance, while universities such as Harvard Business School offer accessible overviews in their accounting and finance materials.

FAQ: Examples of current vs. long-term liabilities

Q1: What are common examples of current liabilities on a small business balance sheet?
Common examples of current liabilities for a small business include accounts payable, credit card balances, short-term bank loans, the current portion of long-term loans, accrued payroll and payroll taxes, sales tax payable, and unearned revenue related to deposits or prepaid services expected to be delivered within a year.

Q2: Can the same loan be both a current and a long-term liability?
Yes, and this is one of the most important examples of current vs. long-term liabilities. A 5‑year bank loan, for instance, will have the principal due in the next 12 months classified as a current liability, while the remaining principal is shown as a long-term liability.

Q3: Are lease obligations an example of current or long-term liability?
Most significant leases are both. Under modern accounting standards, a lease typically creates a liability representing future lease payments. The portion due within 12 months is a current liability; the rest is a long-term liability.

Q4: Is deferred revenue a current or long-term liability?
Usually, deferred revenue is a current liability, because most performance obligations (like subscriptions, service contracts, or preorders) are satisfied within a year. However, if a company sells multi-year contracts and doesn’t expect to deliver all services within 12 months, the portion related to later years is a long-term liability.

Q5: What is a good example of a purely long-term liability?
A 10‑year bond that doesn’t mature for several years is a classic example of a long-term liability. Until the bond is within 12 months of maturity, the entire principal is treated as long-term. As the maturity date approaches, the portion due in the next year is reclassified to current liabilities.

Q6: How often should a company review the classification of its liabilities?
At a minimum, classification should be reviewed at each reporting date (monthly, quarterly, or annually, depending on how often financial statements are prepared). Any time a loan is refinanced, covenants change, or maturity dates are modified, the company should reassess whether parts of a liability should move between current and long-term categories.