List of liabilities on a balance sheet: What is it?

As a business owner, businesses cannot avoid dealing with the accounting especially the list of liabilities on a balance sheet. In this article, Viindoo provides to businesses have a clear understanding of financial situation, it is essential to comprehend the fundamental concepts of liiabilities (money spent), which are the main components of a balance sheets.

A liability is a financial obligation that a company owes to others. It can be an amount due to a vendor, employee, or lender, among others. Liabilities are recorded on the balance sheet and are categorized as either current or long-term.

Liabilities are an important component of a balance sheet because they represent the sources of financing for a company's assets. A company's ability to meet its financial obligations is often evaluated by analyzing its liabilities and comparing them to its assets, cash flows, and income.

Examples of the list of liabilities on a balance sheet include: Accounts payable, Short-term loans, Salaries and wages payable, Interest payable, Income taxes payable, Deferred income taxes, Pension and postretirement benefit obligations, Warranty obligations

Current Liabilities

Suppose a company has the following current liabilities:

• Accounts payable: $10,000
• Accrued expenses: $5,000
• Short-term debt: $20,000
• Deferred revenue: $15,000
• Unearned income: $8,000

The total current liabilities would be $58,000.

Long-Term Liabilities

Suppose a company has the following long-term liabilities:

• Notes payable: $50,000
• Bonds payable: $100,000
• Capital leases: $25,000
• Pension liabilities: $75,000
• Deferred taxes: $20,000

The total long-term liabilities would be $270,000.

Wages Payable: Accrued income is the money employees have earned but not yet received, recorded as a liability on the company's financial statement. It increases as employees work and accumulate earnings, and decreases when paid.

Interest Payable: Companies use credit to buy goods and services, which incurs interest and represents a liability. This interest is recorded on the financial statements and paid off over time.

Dividends Payable: When companies issue stocks and pay dividends, the amount owed to shareholders after the declaration of the dividend is a liability, lasting for about two weeks until payment. As dividends are typically paid quarterly, this liability recurs four times a year and is noted on the balance sheet until the dividend is paid, after which it is removed.

Unearned Revenues: This refers to a company's liability to deliver goods and/or services to a customer at a future date after receiving payment in advance. This creates an obligation for the company to fulfill the delivery of the goods or services, and the amount received in advance is recorded as a liability on the company's balance sheet. Once the delivery of the product or service is made, the liability is reduced, and an offsetting entry is made to reflect the actual revenue earned by the company.

Liabilities of Discontinued Operations: This is a type of liability that many people tend to overlook, but it is crucial for companies to pay close attention to it. It pertains to the financial impact that an operation, division, or entity currently held for sale or recently sold has on the company. It also includes the financial impact of a product line that is currently shut down or has been recently shut down. 

Companies are required to account for these liabilities in order to accurately reflect the financial position of the company, including any potential losses or gains from the sale or shutdown of these assets. These liabilities are typically recorded on the balance sheet and can have a significant impact on the financial statements and overall performance of the company.

Long-Term (Non-current) liabilities, as the name suggests, are obligations that are not due in the near future but rather in 12 months or more. The largest liability for many companies is long-term debt, also known as bonds payable, which is a common way for companies to finance their ongoing long-term operations. The amount of long-term debt can fluctuate as bonds are issued, mature, or called back by the issuer.

In addition to bonds and loans, other obligations such as rent, deferred taxes, payroll, and pension obligations can also be listed under long-term liabilities. Analysts look for assurance that companies can pay their long-term obligations using assets derived from future earnings or financing transactions. To provide a clearer picture of a company's financial standing, other examples of non-current liabilities include:

Warranty Liability: Warranty liability is an estimated amount that may be spent on repairing products under warranty. This is common in the automotive industry where cars have long-term warranties.

Contingent Liability Evaluation: A contingent liability is a possible obligation that may arise in the future, depending on the occurrence or non-occurrence of a specific event.

Deferred Credits: Prepaid revenue is a liability that may be current or non-current, and represents revenue collected before it is earned on the income statement. Examples include customer advances and deferred revenue. Once revenue is earned, the liability is reduced and becomes part of the company's revenue.

Post-Employment Benefits: Employee benefits that will be paid out to employees or their families after retirement are considered a long-term liability. This liability can include healthcare and deferred compensation, and can be a significant portion of a company's non-current liabilities.

Let's say you want to start a small business selling handmade jewelry. You rent a storefront and purchase supplies to make your jewelry. Your liabilities could include:

• Rent payable: This is the amount of rent you owe your landlord for your storefront.
• Accounts payable: This is the amount of money you owe your suppliers for the supplies you purchased to make your jewelry.
• Taxes payable: This is the amount of money you owe the government for sales tax you collected from customers.
• Loans payable: If you took out a loan to start your business, this would be considered a liability.
• Accrued expenses: This includes expenses you've incurred but haven't paid yet, like utility bills or employee wages.
• Deferred revenue: If you offer gift cards or pre-paid subscriptions to your customers, this is considered deferred revenue until the service or product is provided.
• Warranty obligations: If you offer a warranty on your products, this would be considered a liability until the warranty period is over.

Accounting software system can help with the liabilities on a balance sheet in a number of ways:

• Tracking and managing accounts payable: Accounting software can help track and manage accounts payable, making it easier to monitor the amount owed to suppliers and to pay bills on time.
• Calculating and managing payroll liabilities: Accounting software can help with calculating and managing payroll liabilities, such as payroll taxes and benefits. This can help ensure compliance with tax laws and avoid penalties for late payments.
• Managing loans and other long-term liabilities: Accounting software can help track and manage long-term liabilities, such as loans and mortgages, making it easier to manage payments, monitor interest rates, and calculate the impact on cash flow.
• Generating financial reports: Accounting software can generate financial reports that provide an overview of a company's liabilities, including the amount owed, due dates, and interest rates. This can help with financial planning and decision-making.
  
• Integration with other systems: Accounting software can integrate with other systems, such as inventory management, to provide a more complete view of a company's liabilities and to help manage cash flow more effectively.

Overall, accounting financial software can help businesses manage their liabilities more efficiently and effectively, reducing the risk of missed payments, penalties, and other financial problems. Follow Viindoo for more information about the list of liabilities on a balance sheet our comprehensive accounting system.

>>>> See More: 

• What Is Notes Payable? Different Between Accounts Payable
• Account Receivable Process: A Comprehensive Guide