To run a business properly, understanding your finances is a must. Although you have professionals that can seamlessly handle business finances, as business owners, it is crucial to oversee your business. Liability is one of the most important aspects of a business.
In this article, we'll further discuss liabilities in accounting so you can stay on top of your day-to-day business operations.
The money due by a company to a person or another entity is referred to in accounting as liabilities. In simpler terms, these are your company's debts regardless of when they are due. Moreover, liabilities may be things with a comparable worth.
Liabilities can help businesses manage their business operations and speed up value creation. But, when handled improperly, they can harm firms significantly and, occasionally, permanently.
Several items cover business liabilities. These can be wages you need to pay your employees, unpaid taxes, or due mortgage payables. In general, liabilities are divided into two broad categories: short-term and long-term.
We'll discuss each category and provide examples to help business owners understand them better.
Short-term liabilities are also called current liabilities. These are liabilities that your business needs to pay within a year, hence “short term”. These include taxes payables, vendor invoices, and wages payables.
Here are examples of current liabilities.
Long-term liabilities are also coined as non-current liabilities. From the name itself, these are business liabilities you are expected to pay in 12 months or more. Bonds payable or long-term debt is one example and are usually the largest of these liabilities.
Here are other examples of long-term liabilities.
An expense is a business's operational cost incurred to produce income. An expense is primarily distinguished from liabilities by how it relates to your company's revenue. Expenses and revenues are declared on income statements, while assets and liabilities appear on the balance sheet.
Furthermore, expenses can be paid quickly with cash, whereas delaying payment would make the expense a liability.
|Operating cost to generate revenue||Debt and dues owed by a business|
|Related to the company’s revenue||Amount a business owns currently or in the future|
|Shown on incomes statements||Shown on balance sheets|
Examining how you pay for everything for your organization will help you comprehend business liabilities in a clear manner. You borrow money or use cash from a checking account to make purchases. Using a credit card is a form of borrowing, just like any other kind.
Your balance sheet depicts your company's financial health at the completion of each accounting period, listing all of your liabilities. Throughout time, liabilities may be fulfilled by the transfer of funds, products, or services.
You must list all your liabilities and add them up to get your total liabilities. A simple accounting method can be used to determine whether your books are balanced.
Liabilities + Equity = Assets
Your total liabilities and equity must match the total assets for your business to be considered balanced.
You can't talk about liabilities without knowing your business assets. Assets are items with value that a company owns. Here are some prime examples of business assets.
Managing a company's financial obligations can be confusing, especially for small businesses. Fortunately for beginners like you, Unloop can help you sort out your finances. Our bookkeeping services will keep your business in the loop for your finances. Our services include:
We also offer other accounting services such as forecasting, accounts payable, payroll, and taxes. Stop worrying about your finances and let the experts handle it. Book a call with us today!
Unloop is the first and only accounting firm exclusively servicing ecommerce and inventory businesses in the US and Canada. With the power of people and technology, our team dives deep into COGS and inventory accounting. You are paired with a dedicated bookkeeping team that prepares accurate financial statements, financial forecasts, and can also pay bills or run payroll for you. Come tax time, everything is organized and ready to go, so you don't need to worry. Book a call with an ecommerce accountant today to learn more.