Scribd Logo
Upload

Welcome to Scribd!

  • 12 views

    Liabilities Project

    Uploaded by

    Islam Hassan
    This document defines liabilities in accounting and provides examples and methods for calculating different types of liabilities. It explains that liabilities are any debts a company owes, such as loans, bills, or future payments. Current liabilities must be paid within 12 months and include accounts payable, short-term loans, and taxes owed. Long-term liabilities are due after 12 months, like long-term loans or lease payments. The document outlines how to calculate total liabilities by adding all debt amounts, and current liabilities specifically by adding debts due within one year. It also discusses contingent liabilities and maintaining the accounting equation of assets equaling liabilities plus equity.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd

    Liabilities Project

    Uploaded by

    Islam Hassan
    12 views5 pages
    This document defines liabilities in accounting and provides examples and methods for calculating different types of liabilities. It explains that liabilities are any debts a company owes, such as loans, bills, or future payments. Current liabilities must be paid within 12 months and include accounts payable, short-term loans, and taxes owed. Long-term liabilities are due after 12 months, like long-term loans or lease payments. The document outlines how to calculate total liabilities by adding all debt amounts, and current liabilities specifically by adding debts due within one year. It also discusses contingent liabilities and maintaining the accounting equation of assets equaling liabilities plus equity.

    Original Description:

    liabilities Project

    Original Title

    liabilities Project

    Copyright

    © © All Rights Reserved

    Available Formats

    DOCX, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    This document defines liabilities in accounting and provides examples and methods for calculating different types of liabilities. It explains that liabilities are any debts a company owes, such as loans, bills, or future payments. Current liabilities must be paid within 12 months and include accounts payable, short-term loans, and taxes owed. Long-term liabilities are due after 12 months, like long-term loans or lease payments. The document outlines how to calculate total liabilities by adding all debt amounts, and current liabilities specifically by adding debts due within one year. It also discusses contingent liabilities and maintaining the accounting equation of assets equaling liabilities plus equity.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    12 views5 pages

    Liabilities Project

    Uploaded by

    Islam Hassan
    This document defines liabilities in accounting and provides examples and methods for calculating different types of liabilities. It explains that liabilities are any debts a company owes, such as loans, bills, or future payments. Current liabilities must be paid within 12 months and include accounts payable, short-term loans, and taxes owed. Long-term liabilities are due after 12 months, like long-term loans or lease payments. The document outlines how to calculate total liabilities by adding all debt amounts, and current liabilities specifically by adding debts due within one year. It also discusses contingent liabilities and maintaining the accounting equation of assets equaling liabilities plus equity.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 5

    KEY POINTS

     What are liabilities in accounting?

     How Do I Know If Something Is a Liability?


     How to find liabilities?

     Examples of liabilities

     How to calculate Total liabilities?

     How to Calculate Current Liabilities?

    What are liabilities in accounting?


    Liabilities are any debts your company has, whether it’s bank loans, unpaid bills,
    IOUs, or any other sum of money that you owe someone else.

    If Company promised to pay someone a sum of money in the future and haven’t
    paid them yet, that’s a liability.

    How Do I Know If Something Is a Liability?


    A liability is something that is owed to or obligated to someone else. It can be real
    (e.g. a bill that needs to be paid) or potential (e.g. a possible lawsuit).

    How to find liabilities?


    You can find all of your liabilities on your company’s balance sheet, which is one
    of the three major financial statements. (The other two being the income
    statement and the cash flow statement.)

    All balance sheets are divided into three sections:

    1. The assets section, which tells you how much you have.

    2. The liabilities section, which tells you what you owe.

    3. The equity section, which tells you how much you and other investors have
    invested in your business so far.

    Examples of liabilities

    1
    Most businesses will organize the liabilities on their balance sheet under two
    separate headings: current liabilities and long-term liabilities.

    Current liabilities are debts that you have to pay back within the next 12 months.

    Long-term liabilities are debts that aren’t due for more than 12 months.

    We separate these for two reasons:

    1. It makes it easier for anyone looking at your financial statements to figure


    out how liquid your business is (i.e. capable of paying its debts).

    2. Generally accepted accounting principles (GAAP) require you to do so.

    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.

    Some common examples of current liabilities include:

     Accounts payable, i.e. payments you owe your suppliers.

     Principal and interest on a bank loan that is due within the next year.

     Salaries and wages payable in within one year.

     Notes payable that are due within one year.

     Income taxes payable.

     Mortgages payable.

     Payroll taxes.

    Long-term liabilities

    Also sometimes called “non-current liabilities,” these are any obligations,


    payables, loans and any other liabilities that are due more than 12 months from
    now.

    Some common examples of long-term liabilities include:

     Principal and interest payments due more than a year from now.

    2
     Bonds, debentures and long-term loans.

     Deferred tax liabilities.

     Lease payments that due for more than a year.

     Mortgage, equipment and other capital payments that due for more than a
    year.

    What about 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.

    How to calculate Total liabilities?


    Total liabilities simply mean the sum of all the money a business owes to its
    creditors. Investors or creditors may want to look into total liabilities to determine
    if a company is financially healthy or a good investment.

    To calculate total liabilities, check the list of liabilities. Then add up all the ones
    that apply to your business to calculate total liabilities.

    For example, you may wish to combine:

     Payroll expenses

     Inventory costs

     Costs for rent or building mortgages

     Loans

     Pension expenses

     And more

    Once you at all those up, you’ll have the total liabilities or debt obligation for your
    company. Investors sometimes examine the total liabilities of the company. They

    3
    compare them against similar companies in the same industry. This way, they can
    tell whether the company in question is handling its finances responsibly.

    How to Calculate Current Liabilities?


    To calculate current liabilities, you need to add together all the money you owe
    lenders within the next year (within 12 months or less).

    The debt ratio The debt ratio equations is:


    Debt ratio = Total liabilities / Total assets

    Current Debt ratio = Total liabilities / Total assets

    Long-term debt ratio = Long-term liabilities / Total assets

    Assets = Liabilities + Equity

    4
    If your assets don’t equal your liabilities and equity, the two sides of your
    balance sheet won’t ‘balance,’ the accounting equation won’t work, and it
    probably means you’ve made a mistake somewhere in your accounting.

    ISLAM HASSAN

    You might also like