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Definition
The financial accounting term liability is used to describe the debt of a corporation that results from a transaction involving the transfer of an asset or the provision of a service. Liabilities are reported on a company's balance sheet.
Calculation
Liabilities = Assets - Owner's Equity
Explanation
Nearly all businesses have liabilities; even the most successful and profitable of companies will make purchases on credit. Most companies also find it desirable to borrow money as a means of expanding operations more rapidly. The borrowed money can be used to purchase new machinery, or finance projects, which will produce additional items to be sold to customers.
The categories of liabilities appearing on a balance sheet are shown below. Short term obligations are listed before those of longer terms.
Current Liabilities: includes accounts payable, notes payable, income taxes payable, accrued expenses and the current portion of long term debt
Long Term Debt: includes mortgage and other long-term debt obligations such as bonds issued to the marketplace.
Example
The table below illustrates the format for the liabilities section of the balance sheet.
Current Liabilities | |
Accounts Payable | $2,674,000 |
Short / Current Long Term Debt | $682,000 |
Other Current Liabilities | $2,085,000 |
Total Current Liabilities | $5,441,000 |
Long Term Debt | $4,484,000 |
Other Liabilities | $5,829,000 |
Deferred Long Term Liability Charges | $0 |
Minority Interest | $442,000 |
Negative Goodwill | $0 |
Total Liabilities | $16,196,000 |
Related Terms
Also known as a statement of financial position, the balance sheet is used to show the financial health of a company at a particular point in time. The balance sheet consists of assets, liabilities, and owner's equity in the company. It is one of the four key financial statements issued by public companies.
Moneyzine EditorJanuary 8th, 2024
The accounting term used to describe an economic resource, which is owned by the corporation and expected to provide future benefits to its operation, is asset. Appearing on the balance sheet, assets are typically broken down into two categories:Moneyzine EditorJanuary 5th, 2024- The financial accounting term owner's equity is used to describe the resources that are owned by the common and preferred stock shareholders of a company. Owner's equity is reported on a company's balance sheet.Moneyzine EditorSeptember 20th, 2023
The financial accounting term current liabilities are generally defined as any debts that must be paid within one year or one operating cycle, whichever is longer. Current liabilities are a subcategory of liabilities, which appear on a company's balance sheet.Moneyzine EditorJanuary 12th, 2024
The financial accounting term long term debt is defined as the loans and other debt obligations of a business that are payable in twelve months or longer. Long term debt appears in the liabilities section of a company's balance sheet.Moneyzine EditorJanuary 23rd, 2024
The financial accounting term income taxes payable is used to describe money owed to government authorities but not yet paid. Income taxes payable appears in the current liabilities section of the company's balance sheet.Moneyzine EditorJanuary 22nd, 2024
