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What are Liabilities?

Liabilities are recorded on the right-hand side of the balance sheet, which includes different types of loans, creditors, lenders, and suppliers. They can be of short term and long term.
Examples of liabilities:

  • Bank debt.
  • Mortgage debt.
  • Money owed to suppliers (accounts payable).
  • Wages owed.
  • Taxes owed.


Classification of Liabilities

These are reported on a balance sheet and are usually divided into two categories:

  • Long-term liabilities: These are reasonably expected not to be liquidated within a year. They usually include issued long-term bonds, notes payables, long-term leases, pension obligations, and long-term product warranties. Liabilities of uncertain value or timing are called provisions.
  • Current liability: These are an enterprise’s obligations or debts that are due within a year or the normal functioning cycle. Moreover, current liability is settled by the use of a current asset, either by creating a new current liability or cash. These appear on an enterprise’s Balance Sheet and incorporate accounts payable, accrued liabilities, short-term debt, and other similar debts.

List of Current Liabilities

  • Accounts Payable: Accounts payable are nothing but, the money owed to the manufacturers.
  • Accrued Expenses: They are the bills that are due to a 3rd party but not payable, for instance, wages payable.
  • Accrued Interest: Accrued Interest incorporates all interest that has been accumulated since previously paid.
  • Bank account overdrafts: BAOs are the short term advances that are outlined by the bank for overdrafts.
  • Dividends payable: They are the dividends stated by the enterprise’s BOD (Board of Directors) that are due to be paid to the shareholders.
  • Income Taxes payable: Income tax is a kind of tax that is owed to the government that is due to be paid.
  • Wages: Wages is the money that is due to be paid to the employees.

Current Liabilities Formula

Current Liability = [Notes payable + Accounts payable + Accrued expenses + Unearned revenue

+ Current portion of long term debt + other short term debt.]