Examples of liabilities
/What are Liabilities?
Liabilities are legal obligations payable to a third party. A promise to make a payment on a future date is a liability. A liability is recorded in the general ledger, in a liability-type account that has a natural credit balance. A number of examples of liability accounts are presented in the following list, which is split into current and long-term liabilities:
Examples of Current Liabilities
The following are examples of current liabilities. These are due for settlement in less than one year. Most liabilities fall into this category.
Accounts payable. Invoiced liabilities payable to suppliers. This liability can be broken down further, into trade payables (payable to suppliers in the ordinary course of business) and other payables (payable to parties not in the ordinary course of business, such as employees).
Accrued liabilities. Liabilities that have not yet been invoiced by a supplier, but which are owed as of the balance sheet date.
Accrued wages. Compensation earned but not yet paid to employees as of the balance sheet date.
Customer deposits. Payments made by customers in advance of the seller completing services or shipping goods to them. If the goods or services are not provided, the company has an obligation to return the funds.
Current portion of debt payable. Any portion of long-term debt that is due for payment within one year.
Deferred revenue. A payment by a customer that has not yet been earned by the company.
Income taxes payable. Income taxes payable to the government.
Interest payable. Interest accrued on debt that has not yet been invoiced by the lender.
Payroll taxes payable. Taxes payable that result from the completion of a recent payroll transaction.
Salaries payable. Compensation owed to employees, typically to be paid out in the next payroll cycle.
Sales taxes payable. Sales taxes charged to customers, which the company must remit to the applicable taxing authority.
Use taxes payable. Use taxes are essentially sales taxes that are remitted directly to the government having jurisdiction, rather than through a supplier who would otherwise remit the tax.
Warranty liability. A reserve for any warranty liability associated with sales, for which warranty claims have not yet been received.
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Examples of Long-Term Liabilities
The following are examples of long-term liabilities. These are due for settlement in more than one year, and almost always involve long-term borrowings.
Bonds payable. The remaining principal balance on bonds outstanding that is due for payment in more than one year.
Loan payable. Debt that is due for payment in more than one year.
Examples of Contra Liability Accounts
There are a small number of contra liability accounts that are paired with and offset regular liability accounts. These contra accounts have a natural debit balance. The following are examples of contra liability accounts:
Debt issue costs. Includes those costs incurred during the issuance of debt, such as legal fees, underwriting fees, and printing costs. They are amortized over the term of the debt as part of the effective interest expense.
Discount on bonds payable. Represents the difference between the face value of a bond and the amount received when the bond is issued at a discount. It is amortized over the life of the bond to gradually increase the carrying amount of the liability until it equals the bond's face value at maturity.
Notes payable discounts. Reflects the difference between the face value of a note payable and the cash proceeds received when the note is issued at a discount. It is amortized over the life of the note to adjust the carrying value to its face amount at maturity.
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