Liabilities – Meaning, Types and Examples

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

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 that is payable over a term exceeding one year. These debts are better known as Fixed or long-term liabilities. These types of liabilities are taken to achieve the long term goal of business or organization.

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 that is expected to be pay within a year (Maximum 1 year). These are also known as short-term liabilities. These types 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 the future.

Example – 

• The decision of the court (Financial) case pending. So, when the result will be unfavorable then we have to pay the amount of fine or charges charged by the court or if the result will be favorable then we do not need to pay any amount.
• Guarantees Undertaken of other persons or businesses. If that person or business makes 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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