Liabilities – Meaning, Types and Examples

Meaning-of-liabilities

The liabilities are those valuable things which the business owes (Loans) someone else or other business and which have to pay in future. These arise during the course of business operation. 

Example: –

  • Debenture
  • Mortgage Loan 
  • Long Term Loans
    • From Banks
    • From Financial Institution
    • From Partners
  • Security Deposit 
    • Vendors
    • Customers
  • Sundry Payable 
    • Trade Creditors
    • Other Creditors 
  • Outstanding Expenses 
  • Pre received Incomes

Type of Liabilities: –

All liabilities can be classified into three types shown below: 

  1. Non-Current Liability
  2. Current Liability
  3. Contingent Liability

1. Non-Current Liability

A fixed liability is a type of debt which is payable over a term exceeding one year. These debts are better known as Fixed or long-term liabilities. These type of liabilities are taken to achieve the long term goal of business or organisation.

For Examples: –

  • Debenture
  • Mortgage Loan 
  • Long Term Loans
    • From Banks
    • From Financial Institution
    • From Partners or investors
  • Security Deposit 
    • Vendors
    • Customers

2. Current Liability

A current liability is a type of debt which is expected to be pay within a year (Maximum 1 year). These are also known as short-term liabilities. These type of liabilities are taken to maintained the business credit cycle. These are also taken to meet the working capital requirements of the business. 

Example – 

  • Short Term Loans
    • From Banks
    • From Financial Institution
    • From Partners or investors
  • Sundry Payable 
    • Trade Creditors
    • Other Creditors
    • Bills Payable
  • Outstanding Expenses

3. Contingent Liability

It refers to that amount of Liability which may or may not become payable in future.

Example – 

  • The decision of the court (Financial) case pending. So, when the result will be unfavourable then we have to pay the amount of fine or charges charged by the court or if the result will be favourable then we do not need to pay any amount.
  • Guarantees Undertaken of other person or business. If that person or business make any financial fraud to that company then we have to pay for it because we had undertaken the guarantee or vice versa.

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