Current / non-current classification
In one sentenceDividing assets and liabilities in the statement of financial position by when they will be realized or settled: within twelve months they are current, and after that non-current.
Simply put
A bank reading your statements wants to know: what will you collect and what will you pay over the coming year? So each item is split into a current part and a non-current part (international standard IAS 1).
A long-term loan is a clear example: next year's installment is current, and the rest is non-current. Mixing the two parts changes the current ratio and gives a false picture of liquidity.
Worked example
A factory has financing of 500,000 SAR repayable in 5 equal annual installments, the first due after 6 months.
Annual installment: 500,000 ÷ 5100,000 SAR
Current portion (repaid within 12 months)100,000 SAR
Non-current portion: 500,000 − 100,000400,000 SAR
Don't confuse it with
Current ratioThe ratio is calculated from the result of the classification, so any classification error changes it.