LIABILITIES IN ACCOUNTING – ALL YOU NEED TO KNOW

The definition of liability in financial accounting is a business’s financial responsibilities. A common liability for small businesses are accounts payable, or money owed to suppliers, according to Accounting Coach. Liabilities are found on a company’s balance sheet, a common financial statement generated through financial accounting software. They are also referred to as “payables” in accounting.

All businesses have liabilities, except those who operate solely operate with cash. By operating with cash, you’d need to both pay with and accept it—either with physical cash or through your business checking account.

Liabilities in Accounting are the financial obligation of the company as a result of any past events which are legally binding on it to be payable to the other entity, settling of which requires an outflow of the different valuable resources of the company, and these are shown in the balance of the company.

 Liabilities in Accounting:

• Current Liabilities
• Non-Current Liabilities
• Contingent Liabilities

• Current Liabilities

These are any outstanding bill payments, payables, taxes, unearned revenue, short-term loans or any other kind of short-term financial obligation that your business must pay back within the next 12 months.Accounts Payable: Accounts payable are nothing but, the money owed to the manufacturers.

1. Accrued Expenses– These are the expense, i.e., the salaries which are payable to the employees in the future.

1.  Accrued Interest: Accrued Interest incorporates all interest that has been accumulated since previously paid.

1. Bank account overdrafts (BAO): BAOs are the short term advances that are outlined by the bank for the purpose of overdrafts.

1. Notes payable or Bank loans: It is the existing principal part of a long term loan.

1. Dividends payable: They are the dividends stated by the enterprise’s BOD (Board of Directors) that are due to be paid to the shareholders.

1. Income Taxes payable: Income tax is a kind of tax that is owed to the government that is due to be paid.

1. Wages: Wages is the money that is due to be paid to the employees.

•  Non-Current Liabilities

Here is the list of Non-Current Liabilities Accounting –

1. Bonds Payable– This is a liability account that contains the amount owed to bondholders by the issuer.
2. Long term Loans –Long-term loans are the loans that are taken and to be repaid in a longer period, generally more than a year.
3. Customer Deposits –The customer which is taken for a very long maturity more than a year, generally a Fixed deposit in a bank or for any longer duration contract;
4. Mortgage Payable –This is the liability of the owner to pay the loan for which it has been kept as security and to be payable in the next twelve months.
5. Unearned Revenue –unearned revenue arises when the company failed delivered to the goods or services but has taken the money in advance.
6. Deferred income taxes– The income taxes that are due for the current period and have not yet been paid;
7. Capital Lease– This is a lease agreement made between the owner and the person who wants the temporary use

• Contingent Liabilities

Some businesses might record a third type of liability on their balance sheets: contingent liabilities. These are any liabilities you might owe someone, depending on the result of a lawsuit or if you have to pay your customers back to satisfy the terms of a warranty, for example.

1. Pending Investigations-Any pending investigations by the law, suppose if found defaulter than supposed to pay the penalty.
2. Potential Lawsuits-This arises when a person gives a guarantee for another party if the actual party fails to pay the debt in time.
3. Product Warranty –when a warranty is given on a product for a certain time and which gets damaged or spoiled that the company is liable to it and need to pay for that;