ACCOUNTING LIABILITIES – ALL YOU NEED TO KNOW
The definition of liability in financial accounting is the financial responsibilities of a business. According to Accounting Coach, a common liability for small businesses is accounts payable or amounts owed to suppliers. Liabilities are found on a company’s balance sheet, a common financial statement generated by financial accounting software. They are also called “debts” in accounting.
All businesses have liabilities except those that run on cash alone. By operating with cash, you will have to both pay and accept it, either with physical cash or through your business current account.
Liabilities in accounting are the financial obligation of the business as a result of past events that legally oblige it to be payable to the other entity, the settlement of which requires an outflow of various valuable resources of the business, and these are shown in the company’s balance sheet.
Liabilities in accounting:
- Current liabilities
- Non-current liabilities
- Contingent liabilities
This is any unpaid bill payments, debts, taxes, unearned income, short-term loans, or any other type of short-term financial obligation that your business must repay within the next 12 months. .Accounts payable: Accounts Payable is nothing but money owed to manufacturers.
- Increased expenses– These are the expenses, that is to say wages that are due to employees in the future.
- Increased interest: Accrued interest includes all interest that has accrued since the previous payment.
- Bank overdrafts (BAO): BAOs are the short-term advances that are described by the bank for overdraft purposes.
- Notes payable or bank loans: It is the existing main part of a long-term loan.
- Dividends payable: It is the dividends declared by the CA (Board of Directors) of the company that must be paid to the shareholders.
- Taxes payable on income: Income tax is a kind of tax that is owed to the government and must be paid.
- Wages: Salary is the money that must be paid to employees.
- Non-current liabilities
Here is the list of Accounting for non-current liabilities –
- Obligations payable– This is a liability account that contains the amount owed to bondholders by the issuer.
- Long term loans –Long-term loans are loans taken out and to be repaid over a longer period, generally longer than one year.
- Customer deposits –The customer who is taken for a very long term of more than one year, generally a fixed deposit in a bank or for any contract of longer duration;
- Mortgage payable –This is the owner’s responsibility to pay the loan for which it has been held as collateral and to be due within the next twelve months.
- Unearned income –unearned income occurs when the company has not delivered the goods or services, but has taken the money in advance.
- Deferred taxes– Income taxes that are due for the current period and have not yet been paid;
- Capital lease– This is a rental contract concluded between the owner and the person who wishes the temporary use
Some companies may record a third type of liability on their balance sheet: contingent liabilities. These are all the debts you may owe someone, depending on the outcome of a lawsuit or whether you have to reimburse your customers to meet the terms of a guarantee, for example.
- Ongoing investigations-Any ongoing investigation by law assumes that if it is found to be in default, it is expected to pay the fine.
- Potential lawsuits-This occurs when a no one gives a guarantee for another party if the actual party fails to pay the debt on time.
- Product Warranty –when a guarantee is granted on a product for a certain period of time and which is damaged or spoiled, that the company is responsible for it and must pay for it;