Liabilities
Liabilities
represent what the company owes. They are usually broken
down on the balance sheet into two categories:
Current Liabilities
Current liabilities are
those debts require to pay off within a year.
Corresponding
to current assets, but on the other side of the balance
sheet, are current liabilities. Current liabilities are
the debts incurred by the company under ordinary of
operating the business and require to pay off within a
year. All debts maturing within a year's time are
categorizes under current liabilities.
Bank
indebtedness
If
your company has an overdraft or an operating line
of credit that is due on demand by the bank, it will
fall into this category. It will not include loans
with fixed repayment terms. (These are discussed
below.)
When
you make purchases against your line of credit, the
accounting is almost identical to the way it would
be if you were buying the item with a positive cash
balance. The only difference is that bank
indebtedness carries a credit balance instead of the
debit balance of a cash account.
Accounts
payable
These
are amounts that you owe to your suppliers for
products and services they have sold to you on
credit. There is usually an accounts payable
sub-ledger that shows the details of which supplier
is owed and how old that debt is.
Accrued
liabilities
These are amounts
that you owe suppliers but for which they have not
yet billed you. Accrued liabilities are usually
accounted for only at the end of the year when your
accountant prepares your financial statements. It
relates to the matching principle mentioned earlier
in the session. The purpose of setting up the
accrued liabilities is to get the expenses into the
proper period, the one in which the expense was"
consumed."
One
of the most common accrued liabilities is the
accountant's fee. It makes sense that the fee should
be included in the year in which it relates; but for
obvious reasons, the accountant has not yet billed
you for preparation of the year end. He or she would
therefore make the following entry:
DR Professional fees (an expense) $XXX
CR Accrued liabilities
$XXX
This
entry would be reversed in the next year as the
actual expense is processed through accounts payable
Examples of Current Liabilities
Current
liabilities includes Notes, bills, loans payable, bank
loans, Acceptances payable, Accounts payable, Dividends
and Interest payable, Mortgages, Bonds, Consumers
deposits, Unclaimed checks, Refunds, Accrued interest,
wages, taxes, Reserve for Federal Taxes, customers
Advances etc...
Current
Liabilities - Bank indebtedness, Accounts Payable, Accrued
Liabilities
