Total Liabilities
Liabilities have the same classifications as assets: current and long-term.

3. Current liabilities - These are debts that are due to be paid within one year or the operating cycle, whichever is longer; further, such obligations will typically involve the use of current assets, the creation of another current liability or the providing of some service.

Usually included in this section are:

  • Bank indebtedness - This amount is owed to the bank in the short term, such as a bank line of credit.
  • Accounts payable - This amount is owed to suppliers for products and services that are delivered but not paid for.
  • Wages payable (salaries), rent, tax and utilities - This amount is payable to employees, landlords, government and others.
  • Accrued liabilities (accrued expenses) - These liabilities arise because an expense occurs in a period prior to the related cash payment. This accounting term is usually used as an all-encompassing term that includes customer prepayments, dividends payables and wages payables, among others.
  • Notes payable (short-term loans) - This is an amount that the company owes to a creditor, and it usually carries an interest expense.
  • Unearned revenues (customer prepayments) - These are payments received by customers for products and services the company has not delivered or started to incur any cost for its delivery.
  • Dividends payable - This occurs as a company declares a dividend but has not of yet paid it out to its owners.
  • Current portion of long-term debt - The currently maturing portion of the long-term debt is classified as a current liability. Theoretically, any related premium or discount should also be reclassified as a current liability.
  • Current portion of capital-lease obligation - This is the portion of a long-term capital lease that is due within the next year.
Look Out!

Current liabilities above are listed in order of their due date.

4. Long-term Liabilities - These are obligations that are reasonably expected to be liquidated at some date beyond one year or one operating cycle. Long-term obligations are reported as the present value of all future cash payments. Usually included are:

  • Notes payables - This is an amount the company owes to a creditor, which usually caries an interest expense.
  • Long-term debt (bonds payable) - This is long-term debt net of current portion.
  • Deferred income tax liability - GAAP allows management to use different accounting principles and/or methods for reporting purposes than it uses for corporate tax filings (IRS). Deferred tax liabilities are taxes due in the future (future cash outflow for taxes payable) on income that has already been recognized for the books. In effect, although the company has already recognized the income on its books, the IRS lets it pay the taxes later (due to the timing difference). If a company's tax expense is greater than its tax payable, then the company has created a future tax liability (the inverse would be accounted for as a deferred tax asset).
  • Pension fund liability - This is a company's obligation to pay its past and current employees' post-retirement benefits; they are expected to materialize when the employees take their retirement (defined-benefit plan). Valued by actuaries and represents the estimated present value of future pension expense, compared to the current value of the pension fund. The pension fund liability represents the additional amount the company will have to contribute to the current pension fund to meet future obligations.
  • Long-term capital-lease obligation - This is a written agreement under which a property owner allows a tenant to use and rent the property for a specified period of. Long-term capital-lease obligations are net of current portion.
Look Out!

The liabilities above are listed in order of their due date.

Balance Sheet Components - Marketable & Nonmarketable Instruments

Related Articles
  1. Investing

    Current Liabilities

    Current Liabilities are company debts due within one year or one operating cycle, whichever is greater. An operating cycle is the time it takes a company to purchase inventory and convert it ...
  2. Investing

    Understanding Total Liabilities

    Total liabilities are the combined debts an individual or company owes.
  3. Taxes

    What is a Tax Liability?

    Tax liability is the amount of money a person or entity owes to the government as the result of a taxable event.
  4. Personal Finance

    How To Improve Net Worth By Decreasing Liabilities

    Here's an analysis of how to adjust liabilities and assets to improve net worth.
  5. Investing

    How to Analyze a Company's Financial Position

    Find out how to calculate important ratios and compare them to market value.
  6. Small Business

    Understanding Limited Liability

    Limited liability is a legal concept that protects equity owners from personal losses due to their ownership interest in the company.
  7. Taxes

    Understanding Deferred Income Tax

    Deferred income tax is a liability on a balance sheet that reflects income tax that is allocable to the current period, but has not yet been paid.
  8. Investing

    Understanding Long-Term Debt

    Long-term debt is any debt or liability that is due in more than one year.
Frequently Asked Questions
  1. What's considered to be a good debt-to-income (DTI) ratio?

    Your debt-to-income ratio helps lenders determine your credit worthiness. Find out how to calculate your score and how to ...
  2. What is the difference between a loan and a line of credit?

    Learn to differentiate between lines of credit and standard loans, and determine when you are likely to use each method of ...
  3. What does a Chief Financial Officer (CFO) do?

    A CFO is responsible for accurate reporting of a company's financial information, investing the company's money and identifying ...
  4. How did George Soros break the Bank of England?

    George Soros pocketed $1 billion by betting against the British pound, cementing his reputation as the premier currency speculator ...
Trading Center