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What Are Liabilities in Accounting? With Examples Bench Accounting

Liabilities Meaning & Examples in Accounting

The other two types of contingent liabilities — possible and remote — do not need to be stated in the balance sheet because they are less likely to occur and much harder to estimate. Accountants should note possible contingent liabilities in the footnotes of the company’s financial statements, though. Like businesses, an individual’s or household’s net worth is taken by balancing assets against liabilities. For most households, liabilities will include taxes due, bills that must be paid, rent or mortgage payments, loan interest and principal due, and so on.

This is a good reminder that people have different perspectives and understandings of accounting terms. If you are just visiting the site, just wait a bit and it should be back soon. If you own the web site, please verify with your hosting company if your server is up and running and if they have our firewall IPs whitelisted. If the problem persists, open a ticket on our support page and we will assist with troubleshooting. With no obligation to pay anybody just yet, no outflow of resources should be expected.

Balance Your Assets and Liabilities for a Healthy Business

Listed in the table below are examples of current liabilities on the balance sheet. Liabilities are the obligations of a company that are settled over time once economic benefits (i.e. cash payment) are transferred. It makes it easier for anyone looking at your financial statements to figure out how liquid your business is (i.e. capable of paying Liabilities Meaning & Examples in Accounting its debts). See how Annie’s total assets equal the sum of her liabilities and equity? If your books are up to date, your assets should also equal the sum of your liabilities and equity. Liquidity ratios are a class of financial metrics used to determine a debtor’s ability to pay off current debt obligations without raising external capital.

Liability can also have short-term and long-term components—for example, long-term loans. Again, long-term liabilities are typically not due for settlement within the same year. While they aren’t urgent, keeping track of your long-term liabilities will save you from unpleasant financial surprises. For example, you’ll be able to find a buyer for your furniture or espresso machine quickly. But you still need to negotiate the price, arrange for pickup, and get your money. In other words, converting them into cash is not as easy as selling bonds or stocks.

Non-Current Liabilities

Using borrowed funds is not always a sign of financial weakness. For instance, a store executive may arrange for short-term loans before the holiday shopping season so the store can stock up on merchandise. If demand is high, the store would sell all of its inventory, pay back the short-term debt, and collect the difference.

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