Liabilities: What your company owes
The second part of the balance sheet equation consists of liabilities. The more common term is DEBT.
The Definition
Like assets, liabilities are divided into two categories, short and long term, with numerous subcategories. They include all debts and obligations owed by the business to outside creditors, vendors, and banks.
A company’s A/P, payroll, payroll taxes are considered short term. The balances are due and will be paid within one year or less. Long term liabilities, could consist of mortgages on buildings, startup loans, and vehicle loans. Remember if a company is supplying a balance sheet for an outside source, such as a lender, the current portion (one year from the current date) of these long term liabilities should be recorded in the short term section.
There are three reports that make up the cornerstone of a company’s financial statements. They are the Balance Sheet, Income Statement and Cash Flow Statement.