The liability side of the balance sheet is presented below:
The liability side of the balance sheet tells you how much money the company owes. The liabilities can be broadly classified as current liabilities and non-current liabilities. Non-current liabilities include long-term liabilities and deferred tax liabilities.
Current Liabilities
Accounts payable – These are the bills for which the company owes money to vendors or suppliers. This includes operating expenses and inventory. The company has bought these services on credit. The money is generally due within 30 to 60 days.
Bank notes – These are money the company has borrowed from a commercial lender, such as a bank. The money must be repaid to the bank within one year.
Other current liabilities – These are short-term liabilities, usually accruals. Companies always owe employee salaries, interest, and taxes. Unpaid expenses are estimated and listed as accruals.
Current portion of long-term debt – The current portion of long-term debt are the current liabilities that were originally long-term debts when the company originally borrowed the money. However, time has passed, and the amounts listed in the section are due in less than a year.
Total current liabilities – This is the sum of accounts payable, bank notes, other current liabilities, and the current portion of long-term debt. The total current liabilities are due within one year of the date of the balance sheet.
Long-term Debt
This refers to money the company borrowed that is a long-term loan. The loan matures anywhere from just over a year to thirty years. There are a variety of ways to fund this debt – debentures, mortgage bonds and convertible bonds. It can also include tax liabilities. Financial liabilities such as loans, notes payable, etc. are shown on balance sheet at amortized cost. Some long-term liabilities are also shown at fair value. These include held-for-trading liabilities, derivatives, and liabilities hedged with derivatives.
These are the types of liabilities that are listed on the balance sheet. Understanding these liabilities helps you see what kind of debt the company is carrying.
