Examples of Liabilities
Liabilities are the financial obligations or debt owed by a company. They are typically divided into two main categories: current liabilities and long-term liabilities.
Current liabilities are short-term debts that are typically due within one year. Here are some examples:
- Accounts Payable: This is the money a company owes to suppliers for goods and services purchased on credit but not yet paid for.
- Short-term Loans: These are debt obligations that are due within a year, such as a line of credit used for company operations.
- Accrued Expenses: These are expenses that have been incurred but not yet paid, such as wages payable, interest payable, and taxes payable.
- Unearned Revenue: This is money received in advance for a product or service that has yet to be delivered or performed. It’s a liability because it’s a service the company owes to its customer.
Long-term liabilities are debts that are not due within one year. Here are some examples:
- Long-term Loans: These are obligations that are due after one year, such as a mortgage loan used to purchase property.
- Bonds Payable: These are long-term debt instruments issued by companies to raise capital, which they promise to repay at a certain date.
- Deferred Tax Liabilities: These are taxes that have been accrued but are not due to be paid until a future date.
- Pension Obligations or Post-Retirement Benefits: These are obligations that a company has to pay into its employees’ retirement funds.
Remember, in accounting, the equation Assets = Liabilities + Equity must always hold true. Therefore, a company’s liabilities are one part of a company’s overall financial picture, along with its assets and owners’ equity.