In the previous article of this series, we discussed one of the components of the 'Application of funds' side of the balance sheet - current assets. In this article we shall take a look at another component - current liabilities and will also discuss about working capital. As compared to long term liabilities (debt), current liabilities are obligations that are due within a period of one year. The concept of current liabilities is similar to that of current assets. As companies buy goods and services on credit from their vendors and suppliers, the latter becomes their creditors. As such 'sundry creditors' are bills that are due to creditors and suppliers within a short period of time. It also includes provisions made for a particular year. It usually includes payment of dividends, interest and taxes. Other current liabilities include loans and advances from customers as well. These are basically payments that a company receives in advance. The higher the amount of loans and advances, the better it is for a company as it is able to fund its operations without being charged any interest on the funds. Moving on, to know the average number of days at which a company meets its short term liabilities, one calculates the creditor days. The formula for the same is similar to that of debtor days.
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