current liabilities, e.g. trade payables, overdraft

Current Liabilities

Current liabilities are debts that a company must settle within one year. Think of them as the “short‑term bills” you owe to suppliers, banks, and other creditors.

• Trade Payables – Money owed to suppliers for goods or services bought on credit. Example: A shop buys 100 units of clothing on credit, owes £2,000 to the supplier.
• Overdraft – When a company withdraws more money from its bank account than it has, the bank lends the difference. Example: A café uses £500 more than its balance, creating an overdraft of £500.
• Other current liabilities (e.g. short‑term loans, accrued expenses)

📚 Quick formula for trade payables:

$$Trade\ Payables_{new} = Trade\ Payables_{old} + Purchases - Payments$$

Analogy: The Cash Flow Cycle

Imagine a bicycle: Cash is the chain, Trade Payables are the pedals you need to push, and the Overdraft is the extra gear that helps you climb a hill when you run out of power.

Sample Statement of Financial Position (Current Section)

Exam Tips

📝 Tip 1: When you see “current liabilities” in a question, list trade payables and overdraft first, then any other short‑term debts.

📝 Tip 2: Remember that trade payables increase when you buy on credit and decrease when you pay.

📝 Tip 3: An overdraft appears only when the bank account balance is negative; it is a liability that must be repaid.

📝 Tip 4: Use the formula above to calculate changes in trade payables when given purchases and payments.