Loading the player...

What are 'Noncurrent Liabilities'

Noncurrent liabilities are long-term financial obligations listed on a company’s balance sheet that are not due within the present accounting year, such as long-term borrowing, bonds payable and long-term lease obligations. Investors are interested in a company's noncurrent liabilities because they want to see that it does not have too much debt relative to its cash flow. Current liabilities, which is the other major classification of liabilities, are those due within the present accounting year, such as accounts payable, customer advances, taxes payable and any payments due that year on a long-term loan.

BREAKING DOWN 'Noncurrent Liabilities'

Noncurrent liabilities, also called long-term liabilities, are debts not anticipated to be extinguished within the 12 months following the date of the balance sheet. If an entity’s operating cycle is longer than 12 months, a noncurrent liability is an obligation not expected to be extinguished in one operating cycle.

Debt that is due within the 12 months following the balance sheet may still be reported as a noncurrent liability. There must be an intent to refinance this debt, with a financial arrangement in process to restructure the obligation to a noncurrent nature.

Examples of Noncurrent Liabilities

The portion of a bond liability that will not be paid within the upcoming year is classified as a noncurrent liability. When reporting a capital lease as an asset on the balance sheet , as opposed to an operating lease on the income statement, payments due after one year are noncurrent liabilities. This is also true for any rent scenario. Warranties covering more than a one-year period should be reflected in this section as well. Other examples include pension liabilities, deferred compensation, deferred revenue, derivatives and certain health care liabilities.

Purpose of Current Liabilities and Noncurrent Liabilities

Classified balance sheets segregate current and noncurrent liabilities. Lenders primarily concern themselves with the short-term liquidity and the amount of current liabilities. Meanwhile, long-term investors deal with the noncurrent liability aspect of an entity to gauge the company’s foundation for the future.

In addition, there are numerous financial ratios that assist in managing business operations and cash flow considerations. These ratios – such as the current ratio and working capital ratio – utilize current liabilities. Because current liabilities are broken out, noncurrent liabilities are often calculated, as they represent all remaining debts.

Debt Financing

Companies incur noncurrent liabilities for numerous reasons. First, noncurrent liabilities often represent large dollar amounts that would take substantial amounts of time for a company to accumulate on their own. Incurring this debt allows for growth in innovation, research or expansion. Because long-term debt is usually secured by an asset, interest rates are generally lower than with short-term debt. Finally, noncurrent liabilities allow for equity maintenance and an avoidance of stock dilution.

  1. Noncurrent Assets

    A company's long-term investments, in the case that the full ...
  2. Long-Term Liabilities

    In accounting, a section of the balance sheet that lists obligations ...
  3. Total Liabilities

    The aggregate of all debts an individual or company is liable ...
  4. Other Long-Term Liabilities

    A balance sheet item that includes obligations which are not ...
  5. Other Current Liabilities

    A balance sheet entry used by companies to group together current ...
  6. Current Liabilities

    A company's debts or obligations that are due within one year. ...
Related Articles
  1. Investing

    Explaining Noncurrent Liabilities

    Noncurrent liabilities are financial obligations a company owes a year or more into the future.
  2. Small Business

    What's a Liability?

    A liability is a debt. It is an obligation that arises during the course of business and represents a third-party claim on the company's assets. A liability can arise in a number of different ...
  3. Investing

    What are Noncurrent Assets?

    Noncurrent assets are property that a company owns that will last for more than one year.
  4. Investing

    Understanding Total Liabilities

    Total liabilities are the combined debts an individual or company owes.
  5. Investing

    How To Analyze A Company's Financial Position

    Find out how to calculate important ratios and compare them to market value.
  6. Investing

    Explaining Long-Term Liability

    A long-term liability is an obligation a company owes a year or more into the future.
  7. Investing

    Reading The Balance Sheet

    Learn about the components of the statement of financial position and how they relate to each other.
  8. Investing

    Breaking Down The Balance Sheet

    Knowing what the company's financial statements mean will help you to analyze your investments.
  9. Investing

    Current Liabilities

    Current Liabilities are company debts due within one year or one operating cycle, whichever is greater. An operating cycle is the time it takes a company to purchase inventory and convert it ...
  10. Investing

    5 Tips For Reading A Balance Sheet

    If you know how to read it, the balance sheet provides valuable information on a potential investment.
  1. What kinds of liabilities appear on the balance sheet?

    Learn what current and non-current liabilities are, the difference between the two, and examples of liabilities that a company ... Read Answer >>
  2. What is the difference between noncurrent assets and noncurrent liabilities?

    Find out more about noncurrent assets and noncurrent liabilities, some examples of noncurrent assets and liabilities and ... Read Answer >>
  3. What is the difference between current assets and non-current assets?

    Learn how to differentiate between current assets and non-current assets and their uses, which are listed on a company's ... Read Answer >>
  4. Which financial statement can I find noncurrent assets on?

    Find out more about noncurrent assets, the three main types of noncurrent assets and which financial statement includes noncurrent ... Read Answer >>
  5. What are some common examples of noncurrent assets?

    Learn more about noncurrent assets and examples of noncurrent assets, such as tangible fixed assets, intangible fixed assets ... Read Answer >>
  6. What is the difference between current and noncurrent assets?

    Learn about current assets and noncurrent assets, the differences between these types of assets, and some examples of current ... Read Answer >>
Hot Definitions
  1. Graduate Record Examination - GRE

    A standardized exam used to measure one's aptitude for abstract thinking in the areas of analytical writing, mathematics ...
  2. Graduate Management Admission Test - GMAT

    A standardized test intended to measure a test taker's aptitude in mathematics and the English language. The GMAT is most ...
  3. Magna Cum Laude

    An academic level of distinction used by educational institutions to signify an academic degree which was received "with ...
  4. Cover Letter

    A written document submitted with a job application explaining the applicant's credentials and interest in the open position. ...
  5. 403(b) Plan

    A retirement plan for certain employees of public schools, tax-exempt organizations and certain ministers. Generally, retirement ...
  6. Master Of Business Administration - MBA

    A graduate degree achieved at a university or college that provides theoretical and practical training to help graduates ...
Trading Center