Current Liabilities And Long-term Liabilities On The Balance Sheet

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A liability is an obligation to pay or provide future services for something that has been in turn provided or agreed upon in the past. There are two main types of liabilities: current liabilities and long-term liabilities.

Current liabilities

A current liability is one the company expects to pay in the short term using assets noted on the present balance sheet.

Typical current liabilities include accounts payable, salaries, taxes and deferred revenues (services or products yet to be delivered but for which money has already been received).

On the financial statement, information about the solvency of a company can be determined through assessing its liabilities and its ability to settle those obligations.

Long-term liabilities

A long-term liability is one the company expects to pay over the course of more than one year.

Long-term liability is usually formalized through paperwork that lists its terms such as the principal amount involved, its interest payments, and when it comes due. Typical long-term liabilities include bank loans, notes payable, bonds payable and mortgages.

Read next: Reading a financial statement: The balance sheet (assets, liabilities and equity)

References

Markle, K. (2004, August). Introduction to Accounting. Presentation delivered at Schulich School of Business, York University, Toronto, Canada. Pratt, Jamie. (2003). Financial Accounting in an Economic Context. New York: John Wiley & Sons. pp. 42-43, 757.

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