Loading the player...

What are 'Long-Term Liabilities'

Long-term liabilities, in accounting, form part of a section of the balance sheet that lists liabilities not due within the next 12 months including debentures, loans, deferred tax liabilities and pension obligations. The current portion of long-term debt is excluded to provide a more accurate view of a company's current liquidity and the company’s ability to pay current liabilities as they become due. Long-term liabilities are also called long-term debt or noncurrent liabilities.

BREAKING DOWN 'Long-Term Liabilities'

Long-term liabilities are obligations not due within the next 12 months or within the company’s operating cycle if it is longer than one year. A company’s operating cycle is the time it takes an entity to turn inventory into cash.

Exceptions of Long-Term Liability Reporting

An exception to the above two options relates to current liabilities being refinanced into long-term liabilities. If the intent to refinance is present and there is evidence the refinancing has begun, a company may report current liabilities as long-term liabilities for the reasoning that after the refinancing, the obligations are no longer due within 12 months. In addition, a long-term liability that is coming due but has a corresponding long-term investment restricted for the payment of the debt is reported as a long-term liability. The long-term investment must have sufficient funds to cover the debt.

Examples of Long-Term Liabilities

The long-term portion of a bond payable is reported as a long-term liability. Because a bond payable typically covers a long period of time, the majority of a bond payable is long term. The present value of a lease payment that extends past one year is a long-term liability. Deferred tax liabilities typically extend to future tax years, and if this is the case, the tax liabilities are considered a long-term liability. Mortgages, car payments or other loans for machinery, equipment or land are long term except for the next payments to be made in the subsequent 12 months.

Long-Term Liabilities in Ratios

Long-term liabilities are a useful total for management analysis in the application of financial ratios. The debt ratio compares the total liabilities to total assets, although the ratio may be modified to compare the total assets to long-term liabilities only. This ratio is long-term debt to assets. Long-term debt compared to total equity provides insight relating to a company’s financing structure and financial leverage. Long-term debt compared to current liabilities also provides insight regarding the debt structure of an organization.

RELATED TERMS
  1. Total Liabilities

    Total liabilities are the aggregate of all debts an individual ...
  2. Other Long-Term Liabilities

    Other long-term liabilities are a balance sheet item that lumps ...
  3. Current Liabilities

    Current liabilities are a company's debts or obligations that ...
  4. Balance Sheet

    A balance sheet reports a company's assets, liabilities and shareholders' ...
  5. Liability Management

    Liability management is the use of customer deposits and borrowed ...
  6. Business Liability Insurance

    Business liability insurance protects a company and/or business ...
Related Articles
  1. Investing

    Examples Of Asset/Liability Management

    In its simplest form, asset/liability management entails managing assets and cash inflows to satisfy various obligations; however, it's rarely that simple.
  2. Taxes

    Deferred Tax Liability

    Deferred tax liability is a tax that has been assessed or is due for the current period, but has not yet been paid. The deferral arises because of timing differences between the accrual of the ...
  3. Investing

    Reading the Balance Sheet

    Learn about the components of the statement of financial position and how they relate to each other.
  4. Investing

    Breaking Down The Balance Sheet

    Knowing what the company's financial statements mean will help you to analyze your investments.
  5. Investing

    What is Net Worth?

    Net worth is the amount by which assets exceed liabilities. Another way to say this is, it's the value of everything you own, minus all your debts.
RELATED FAQS
  1. How do you calculate a company's equity?

    Company equity, or shareholders' equity, is the net difference between a company's total assets and total liabilities. Read Answer >>
  2. Are accounts payable an expense?

    Learn about how to differentiate between liability accounts and expense accounts, and see why accounts payable is considered ... Read Answer >>
  3. What are the official FASB guidelines regarding contingent liabilities

    Learn how the Financial Accounting Standards Board, or FASB, treats the recognition, estimation and disclosure of contingent ... Read Answer >>
  4. How do accounts payable show on the balance sheet?

    Accounts payable are listed on a company's balance sheet and are considered a short-term debt obligation owed by a company ... Read Answer >>
  5. What are some examples of a deferred tax liability?

    Learn why deferred tax liability exists, with specific examples that illustrate how it arises as a result of temporary differences. Read Answer >>
Hot Definitions
  1. Futures Contract

    An agreement to buy or sell the underlying commodity or asset at a specific price at a future date.
  2. Yield Curve

    A yield curve is a line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but ...
  3. Portfolio

    A portfolio is a grouping of financial assets such as stocks, bonds and cash equivalents, also their mutual, exchange-traded ...
  4. Gross Profit

    Gross profit is the profit a company makes after deducting the costs of making and selling its products, or the costs of ...
  5. Diversification

    Diversification is the strategy of investing in a variety of securities in order to lower the risk involved with putting ...
  6. Intrinsic Value

    Intrinsic value is the perceived or calculated value of a company, including tangible and intangible factors, and may differ ...
Trading Center