What are Non-Current Liabilities?
Non-Current Liabilities, also known as long-term liabilities, represent a company’s obligations that are not coming due for more than one year.
- What are examples of non-current liabilities?
- Where do non-current liabilities appear on the balance sheet?
- How are non-current liabilities different from current liabilities?
- Which financial metrics use non-current liabilities?
Non-Current Liabilities Definition
Non-current liabilities refer to obligations due more than one year from the accounting date.
By contrast, current liabilities are defined as financial obligations due within the next twelve months.
The most common examples of non-current liabilities include the following:
- Long-Term Debt – The portion of a company’s total debt with a maturity date beyond one year.
- Deferred Revenue – The payments received by customers for products or services not yet provided (i.e. “unearned” revenue).
- Bonds Payable – The amount the company owes to bondholders, assuming the bond’s maturity is outside of the next year.
- Notes Payable – The amount the company owes to financiers for any money lent that is due outside of the next year.
- Pension Benefit Obligations – The payments associated with long-term pension plans offered to employees.
- Product Warranties – Obligations that the company expects to pay to customers for the replacement or repair of any goods sold.
- Deferred Tax Liabilities (DTLs) – Taxes owed by a company that will be paid at some point in the future, but not in the current period.
Non-Current Liabilities on the Financial Statements
On the balance sheet, the non-current liabilities section is listed in order of maturity date, so they will often vary from company to company in terms of how they appear.
As with any balance sheet item, any credit or debit to non-current liabilities will be offset by an equal entry elsewhere.
For example, if a company borrows $1 million from creditors, cash will be debited for $1 million and notes payable will be credited $1 million.
Changes in non-current liabilities can also be seen elsewhere in the financial statements, such as when a company records a $1 million cash inflow in the cash flow from financing section of the cash flow statement due to the increase in notes payable.
When the interest on the loan becomes due in less than one year, notes payable will be debited while interest payable will be credited, which would also impact the income statement since interest is tax-deductibe.
If the company pays interest, cash is credited while interest payable is debited, and an interest expense would be listed on the income statement, as well as a cash outflow in the cash flow from financing section of the cash flow statement.
Consolidation of Non-Current Liabilities
Note that a company’s balance sheet will NOT list each and every non-current liability it has individually.
Instead, companies will typically group non-current liabilities into the major line items and an all-encompassing “other noncurrent liabilities” line item.
Non-Current Liabilities vs. Current Liabilities
The main difference between current and noncurrent liabilities is the time in which the obligation is due.
- Current – If it is due in less than a year, it is classified as a current liability.
- Non-Current – If it is due in over a year, it is classified as a non-current liability.
Many current liabilities are tied to non-current liabilities, such as the portion of a company’s notes payable that is due in less than one year.
In that case, notes payable will be debited for the amount, and the notes payable line item of the current liabilities section will be credited.
Non-current liabilities also differ from current liabilities in the sense that they are carried over from one year to the next, rather than typically only appearing on a company’s current balance sheet.
Another difference can be seen through the impact to a company’s working capital calculation.
When a company’s current liabilities increase, net working capital (NWC) would decrease, however, increases to non-current liabilities have no direct effect on net working capital.