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.]