This is a follow up post from http://wp.me/p7eWBR-64 and we’ll be briefly talking about liabilities. No, liability in the sense that,“OMG! That’s girl doesn’t work and demands for money to buy Brazilian weave and what not” or “Holy Smokes! That man doesn’t know how to cook and clean and demands such services from his girlfriend” *snaps fingers in a Z formation*. No, this post is about financial liabilities which contrary to popular opinion, can be a good thing.
So, let’s begin. Financial Liabilities are an important part of a company’s balance sheet. Just as a company has assets, there are also liabilities which are sacrifices a company makes that has future economic benefits. It’s an obligation the company has to other entities which may be to either transfer cash or resources that will be fulfilled at an approved date. Examples of liabilities could be money owing on a loan or mortgage, long term bonds, wages and so on. Financial Liabilities can be classified into two which are Current and Non-Current Liabilities.
Current Liabilities are obligations to be fulfilled immediately or within a year. Examples of them are wages, salaries, taxes and so on. If you deposit your money in a bank, the bank has an obligation to pay you whenever you demand for it. In as much as you money is an asset for the bank, it’s also a liability as they are obligated to pay you when requested for.
Non-Current Liabilities are also called Long Term Liabilities as they don’t have to liquidated within the year. They have a time frame of over a year to them attached to them during which the debtor is free until the time of payment. Some of them include long term mortgages, bonds, payables, product warranties and so on. For instance, when you obtain a loan from the bank for your personal use, you have an asset and a liability. The loan is an asset to your business and at the same time, you’re under obligation to pay the bank when due.
Well, that’s the lesson for today. Hope you all learnt something from this? Have a lovely day ahead.