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Balance Sheet Definition & Examples Assets = Liabilities + Equity

what accounts are liabilities

The impact of these liabilities can significantly influence a company’s financial statements, making it essential for businesses to monitor, manage and strategically plan their liability structure. Familiarity with these concepts can help stakeholders make informed decisions about a company’s financial well-being and future prospects. Liabilities are a company’s financial obligations, like the money a business owes its suppliers, wages payable and loans owing, which can be found on a business’s balance sheet. Liability accounts provide a list of categories for all the debts that the business owes its creditors. Typically, liability accounts will include the word “payable” in their name and may include accounts payable, invoices payable, salaries payable, interest payable, etc.

Long-term lease obligations are liabilities related to paying rent for renting office spaces or any other asset/assets. Accrued expenses are recorded but not yet paid and therefore represent a liability for the company. Liabilities appear on the balance sheet with a categorization of current and noncurrent liabilities. Liabilities are the company’s obligations, and the company is supposed to pay back all of its liabilities/obligations. Assets will typically be presented as individual line items, such as the examples above.

What is a Liability Account? – Definition

FreshBooks’ accounting software makes it easy to find and decode your liabilities by generating your balance sheet with the click of a button. Liabilities and equity are listed on the right side or bottom half of a balance sheet. Some loans are acquired to purchase new assets, like tools or vehicles that help a small business operate and grow. Over 1.8 million professionals use CFI to learn accounting, financial analysis, modeling and more. Start with a free account to explore 20+ always-free courses and hundreds of finance templates and cheat sheets.

what accounts are liabilities

Generally, liability refers to the state of being responsible for something, and this term can refer to any money or service owed to another party. Tax liability, for example, can refer to the property taxes that a homeowner owes to the municipal government or the income tax he owes to the federal government. When a retailer collects sales tax from a customer, they have a sales tax liability on their books until they remit those funds to the county/city/state.

Planning for Future Obligations

Examples include invoices from suppliers, utility bills, and short-term debts. Accounts payable is typically presented on the balance sheet as a separate what accounts are liabilities line item under current liabilities. As businesses continuously engage in various operations, their liability position can change frequently.

If a loan has collateral and the borrower defaults, the lender can claim collateral security/asset and safeguard themselves from risks and losses. When taxes are deferred until a few years to avoid recognition of taxes in the current year, the company reports such tax liabilities as deferred ones. If the company pays off its liabilities on time without any delay, then such a company would be considered safe and less risky by creditors/lenders. Property, Plant, and Equipment (also known as PP&E) capture the company’s tangible fixed assets.


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