Types Of Liabilities In A Balance Sheet

Liability in simple terms is something which owe to some one

. In business terms this means the same as well. Liabilities have different types and they are categorized in different sections within the balance sheet. Liabilities can be any of the following three types.

1.Current Liabilities

2.Long Term Liabilities

3.Contingent Liabilities

1.Current Liabilities

Current liabilities are those ones which are to be paid by the organization in one accounting period. Usually an accounting period is defined as that period in which a company has to complete its operating cycle. Though the accounting cycle varies from one industry to other, it usually is one year. This uniformity has been kept to make comparison amongst the companies as well as the industries easier. Though the company has to pay these liabilities in one accounting period, this does not diminish their importance. Current liabilities reflect on how a company can affectively manage its working capital and also its operating cycle. Companies have to be good at managing their current liabilities otherwise they can neither achieve efficiency nor able to survive and compete the industry in a longer period of time. Current liabilities can become trickier to understand if the companies have long term liabilities with interest. The portion of long term liability payable in a particular accounting period becomes current portion of the long term liability or in simple terms gets included in current liabilities for that period.

2.Long Term Liabilities

Long term liabilities are those liabilities which a company has to pay back after one accounting period i.e., one year. Long term liabilities can also be of many types. Mainly long term liabilities are interest bearing. Company has to payback the installments agreed upon with each creditor. In few cases, the directors of the company do finance the companys projects on withdrawal basis. Under this scheme the directors are agreed with that their money would be returned back to them in a specified per installment manner. Taking long term liabilities is more risky then having short term liabilities. The paying back ability of the company seriously hangs on economys performance. If the economy is unable to do well, it is very difficult for the company to get the money back and pay to its lenders. A reasonable future projection should always be kept in mind and alternate sources of raising funds should always be kept in mind before making such a decision.

3.Contingent Liabilities

These liabilities usually arise out of a mishandled or uncontrollable situation. For example, a company gave warranty of a product, but the warranty had confusion with a certain clause. The customers came back with a problem in the product but the company started blaming the customers for the problem. The customers went to the court and asked for refund. Unless the court decides the fate of these products and the resulting pay back to the customer, it is uncertain that the company will have to reimburse the amounts to its customers. This is also a liability but the company is not sure. This is known as contingent liability, as to pay back or not depends or is contingent on the courts decision.

by: William

POST COMMENT

ARRESTED IN CLAY - An Efficient Place You Can Depend on perfect gift by a well reputed florist Устройство Камина Или Как Он Работает You Can Turn Back Time With Wrinkle Creams Пешеход Тоже Участник Дорожного Движения, Но Всегда Ли Он Помнит Об Этом? The Best Pec Workout Why Choose German Shepherd Puppies? The judgment on the title of Babri Masjid-Ram Janma Bhumi dispute by Lucknow bench of Allahabad High Court is enough Installing An Above Ground Pool Pump Fix XLSM files Several Types Of Desk Lamp The Lowdown: I'm Still Here Can Illness Break A Heart?