Any obligation or debt that is payable by the enterprise to external establishments or individuals is referred to liability. In simple words, liabilities are the obligations raised out of previous transactions, which is payable through the assets possessed by the enterprise.
On the balance sheet, liabilities element are recorded on the opposite of the asset components. In every organization, liabilities are proclaimed against the company’s assets.
These liabilities are classified into two different types
- Current liabilities
- Non-current liabilities
Let us now understand what are current liabilities and non-current liabilities?
What are Current liabilities?
Current liabilities are short-term liabilities such as obligations or debts that are to be repaid within a fiscal year. Management closely monitors current liabilities to check if the firm holds enough cash from current assets to clear obligations ans debt.
These liabilities should be clear within a year from the date stated on the balance sheet. In this process, the company compensates the liabilities by using current assets like inventory sales or cash on hand.
Current liabilities on the balance sheet are mentioned as:
- Bills payable
- Accounts due
- Due on Income taxes
- Due on Interest
- Overdraft Bank account
- Short-term loans
- Accrued expenses
What are Non- Current liabilities?
Non-current liabilities are also termed as long-term liabilities like debts or obligations which are expected to be clear after a financial year or one year. These are the firm’s long term funding sources. Most of the business utilize long-term debt to get fast money to finance the purchase of capital assets or investment on new projects.
These long-term liabilities are necessary for shaping a business’s long-term secureness. However, on the due date if a company is not able to pay its liabilities, then the enterprise will face a stability crisis.
On a balance sheet, non-current liabilities are mentioned as:
- Mortgage Outstanding
- Deferred tax liabilities
- Capital on lease
- Long-term notes due
- Due payment on bonds
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