Types of Liabilities on the Balance sheet

Here is the list of the type of liabilities on the Balance Sheet

  • Notes PayableNotes PayableNotes Payable is a promissory note that records the borrower’s written promise to the lender for paying up a certain amount, with interest, by a specified date. read moreAccounts PayableAccounts PayableAccounts payable is the amount due by a business to its suppliers or vendors for the purchase of products or services. It is categorized as current liabilities on the balance sheet and must be satisfied within an accounting period.read moreSalaries PayableInterest PayableInterest PayableInterest Payable is the amount of expense that has been incurred but not yet paid. It is a liability that appears on the company’s balance sheet.read moreCreditorDebenture/BondsOwner Equity

Liabilities are the financial obligation of the company which is legally binding on it to be payable to the other entity, and primarily there are two types of liabilities on the balance sheet 1) current liabilities that are payable within one year, and 2) non-current liabilities that are payable after one year.

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Top 7 Types of Balance Sheet Liabilities

#1 – Notes Payable

Notes payable is one of the liabilities for a company. Notes payable is the general ledger liability, which records the face value of promissory notesPromissory NotesA promissory note is defined as a debt instrument in which the issuer of the note promises to pay a specified amount to a party on a particular date.read more it has issued. The amount of notes payable represents the amount that remains to be paid. It includes two parties. Firstly borrower and issuer. So notes payable is one of the liabilities for the company because they have to pay interest.

#2 – Accounts Payable

This type of Liability includes the payment due for the services purchased from other organizations on credit, so it is the liability for the company.

#3 – Salaries Payable

The salary which is not paid during the month and the company is liable to pay is called unpaid or outstanding salary, and this also a liability type for the company. It is also called wages payable in case of labor.

#4 – Interest Payable

#5 – Creditor

The creditor is the person or entity from which the company purchases raw material on credit, so it is also a liability.

#6 – Debenture/Bonds

Company issue bondsCompany Issue BondsBonds refer to the debt instruments issued by governments or corporations to acquire investors’ funds for a certain period.read more or debentures to raise the capital for business expansion, so they have to pay interest on those bonds, and they have to pay the full amount at the maturity date.

#7 – Owner Equity

This type of Liability means the initial capital or investment made by the owner into a business, so it is the liability for the business because business and owner are a separate entity.

Examples

Example#1

The company reports total assets of Rs 120000 at the time of closing of the accounting year, accounts Payable 40000, shareholder equity 60000 and creditor 40000 and supplier 50000 and the company having debtorDebtorA debtor is a borrower who is liable to pay a certain sum to a credit supplier such as a bank, credit card company or goods supplier. The borrower could be an individual like a home loan seeker or a corporate body borrowing funds for business expansion. read more of Rs 70000. From the above information, prepare the balance sheet.

Below is given data for the calculation of Balance Sheet Liabilities.

Calculation of Total Liability

Total Liability = 60000+40000+40000+50000

Total Liability = 190000

Calculation of Total Asset

Total Asset = 120000+70000

Total Asset = 190000

From the above example, we can see that Total Asset = Total Liability, which means that the company has enough assets to pay off its long-term and short-term liability.

Example#2

Havells India is in the business of lights. Havells has the following assets and liabilities.

Total Liability = 130000+25000+50000+80000+35000

Total Liability = 320000

Total Asset = 90000+150000+40000+40000

Total Asset = 320000

From the above balance sheet evaluation, we can say that Havells India has a good financial position and enough assets to pay current and long-term liability. Havells India had invested more in fixed assets.

Example#3

TCS is in the field of IT and a global leader in the field of IT. They have clients across the world, and they provide services all over the world. The following is the information available on TCS. So prepare the balance sheet or financial position report for the financial year-end 2018.

Total Liability = 180000+80000+90000+150000+30000+80000

Total Liability=610000

Total Asset = 150000+20000+50000+40000+50000+60000+60000+40000+40000

Total Asset=610000

This has been a guide to Types of Balance Sheet Liabilities. Here we look at its definition, classification, and the liabilities recorded on the balance sheet, along with practical examples. You can learn more about financing from the following articles –

  • Balance Sheet ReconciliationTop Examples of Non-Current Liabilities Comparative Balance Sheet MeaningTop 15 Balance Sheet Items List