Current Liabilities

Current liabilities are short term debts that you are expected to pay fairly soon. Your supplier may extend you 30 day terms, for example. Your leaseholder expects payment each month, and so on.

There is also a third, special type of liability referred to as CAPITAL. CAPITAL describes how your net worth has been financed. CAPITAL liabilities add up to your total equity. CAPITAL can be the amount of money invested in a company by its owners or shareholders, or "retained profit" or "reserves". Why is profit considered to be a liability?

It depends on your point of view. A company is considered to be a separate entity from its share holders or managers. If you invest money into a company (even if you own the entire company) the company owes you that money back. You have loaned money to the company expecting that it will (hopefully) earn a profit and eventually repay you (hopefully) with interest. Since it is money that is owed to you, you become a special kind of "supplier". A supplier of "CAPITAL" or "cash" or "assets" and the company must repay you like it must any supplier. Hence, like a regular supplier account, the debt is a liability as far as the company is concerned - if not from the viewpoint of its owners.