Balance sheet displays the company’s total assets, and how these assets are financed. It is based on below equation:
Assets = Liabilities + Equity
Liabilities are obligations that company has to pay in future due to its past actions like borrowing money. They are incurred in order to fund the ongoing activities of a business. Along with owner’s equity, liabilities are considered source of the company’s assets.
Similar to assets, liabilities are also classified into current and non-current liabilities. Obligations that are due within the next one year are classified as Current Liabilities and everything else are called Non Current Liabilities. Examples of current liabilities are accounts payable and short-term borrowing. Examples of non current liabilities are long term debt and long term lease obligations.
Types of Liabilities
List of liabilities that may be reported on a company’s balance sheet include:
- Accounts Payable : Amount company owes to its vendors and suppliers for products and services that they have already provided or delivered. It represents how much products and services the company has purchased on credit.
- Customer Deposits: Amounts received in advance for future services. Since the amount has not yet been earned, company reports it as liability.
- Unearned Revenue: This is how much customers and clients have paid in advance for the company’s products or services. This will continue to be a liability for the company until it delivers the promised products or services.
- Salaries Payable: Current liability account which reports the amount of salaries earned by a company’s employees, but which have not yet been paid by the company.
- Interest Payable: The amount of interest company owes as on date. Future interest is not recorded as a liability.
- Income Taxes Payable: Income taxes currently due to governments.
- Long Term Debt: This includes loans which are due to be paid after one year. It primarily consist of long term lease obligations, tax contingencies and long term defer tax liabilities.
- Bonds Payable: A long term liability containing the face amount, par amount, or maturity amount of the bonds issued by a company that are outstanding as of the balance sheet date.