Crash Course in Accounting and Financial Statement Analysis, Second Edition

Liabilities

Liabilities represent the company’s obligations to others (Exhibit 6.12). To qualify as a liability, an obligation must be measurable and its occurrence probable.

Exhibit 6.12. Liabilities Typically Consist of (But are Not Always Limited to):

Accounts Payable	A company’s obligations to suppliers for services and products already purchased from them, but which have not been paid; represent the company’s unpaid bills to its suppliers for services obtained on credit from them.
Notes Payable	Debt or equity securities held by the company
Current Portion of Long-Term Debt	Portion of debt with an overall maturity of more than a year; portion due within 12 months
Long-Term Debt	The company’s borrowings with a maturity (full repayment) exceeding 12 months
Deferred Taxes	Potential future tax obligations arising when taxes payable to the IRS are lower than those recorded on financial statements
Minority Interest	Equity interest in the portion of the consolidated businesses that the company does not own

Liabilities represent obligations stemming from a company’s:

• Operating activities

• Financing activities

Liabilities generally possess the following characteristics:

• They are obligations that will be met through the use of cash, goods, or services.

• The transactions from which these obligations arise have taken place.

On the balance sheet, liabilities are divided into two categories:

1. Current liabilities

   • Due within one year

   • Reported in order of maturity, by amount, or in the event of liquidation