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Category: Category - Liabilities

If the question is focused on a “Liability” or is about “Liabilities” in general, please use this category.

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  1. This answer was edited.

    List of Current Assets and Current Liabilities  S.no Current Assets Current Liabilities 1. Sundry Debtors Sundry Creditors 2. Bills Receivables Bills Payables 3. Closing Stock Bank Loan 4. Short-term Investments Outstanding Expenses 5. Prepaid/Unexpired Expenses Salaries and Wages Payable 6. MarketaRead more

    List of Current Assets and Current Liabilities

     S.no Current Assets Current Liabilities
    1. Sundry Debtors Sundry Creditors
    2. Bills Receivables Bills Payables
    3. Closing Stock Bank Loan
    4. Short-term Investments Outstanding Expenses
    5. Prepaid/Unexpired Expenses Salaries and Wages Payable
    6. Marketable Securities Short-term Obligations
    7. Cash in Hand Accrued Liabilities
    8. Cash at Bank Notes Payable
    9. Notes Receivable Short-term Loans
    10. Interest Receivables Unearned Revenue
    11. Short-term Loans and Advances Bank Overdraft
    12.  Unused Office Supplies Rent Payable
    13. Merchandise Inventory Merchandise Accounts Payable
    14. Accrued Income Customer Deposits
    15. Other Current Assets Other Current Liabilities

    Placement in the Balance Sheet

    Current Assets and Current Liabilities

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  1. This answer was edited.

    Meaning of Non-Current Liabilities Non-current liabilities are obligations of an entity which becomes due at a future date and such future date falls beyond 12 months. Whereas current liabilities are those obligations wherein an entity is liable to honour such obligations within 12 months. Meaning oRead more

    Meaning of Non-Current Liabilities

    Non-current liabilities are obligations of an entity which becomes due at a future date and such future date falls beyond 12 months. Whereas current liabilities are those obligations wherein an entity is liable to honour such obligations within 12 months.

    Meaning of Debt

    Debt is any sum of money borrowed by an entity or a person from another entity or a person. Debt is borrowed generally when such an entity has a cash crunch or liquidity crunch or if it has an urgency of making a payment or any other purpose. It can be a long term or a short term debt.

    The amount borrowed can be said to be a debt only if such a contract specifies the intention to repay at a future date the amount so borrowed. The borrower might have to pay interest if it’s agreed earlier in the agreement.

    Is Non-Current Liability a Debt?

    The answer to the above question is that it depends. When we take a bank loan it’s a debt but in case of a deferred tax liability or a long term provision even though it’s a part of non-current liability but it can not be called as a debt.

    I will give you an example of when it shall be called a debt-

    You have a business of manufacturing bottles and there is a huge demand for such bottles in the market recently so you decide to increase the production but your plant has a limited capacity hence you decide to purchase a new plant with higher capacity but your entity is facing a shortage of funds hence you apply to the bank for a loan of such amount.

    The bank sanctions such loan and transfers the amount so required. Now, The agreement states that the amount borrowed is repayable by you after 5 years.

    The loan mentioned in the above case qualifies to be a non-current liability since the obligation to repay arises after 5 years i.e > 12 months. And it’s also an amount borrowed by a person or an entity from another person or an entity. Hence, it’s a perfect example of debt.

    You will be able to understand from the below balance sheet that even though deferred tax liability is included under the head of non-current liabilities it does not signify to be a debt. And a bank loan having obligation to pay after a year is covered under long term debt.

    Presentation of non current liabilities in balance sheet

    Conclusion

    All the non-current liabilities are not long term debts but all the long term debts are non-current liabilities.


    Aastha.

     

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  1. This answer was edited.

    The answer to the question asked is “Liability is credited”. Now, let me help you determine the reason behind why and how is liability credited & not debited. Why and How is Liability credited? Amount payable by a business entity to others is referred to as liability. Liabilities such as creditoRead more

    The answer to the question asked is “Liability is credited”.

    Now, let me help you determine the reason behind why and how is liability credited & not debited.

    Why and How is Liability credited?

    Amount payable by a business entity to others is referred to as liability. Liabilities such as creditors, outstanding expenses, income received in advance, loan taken, etc are classified as personal accounts. So, it is important for us to know both the golden rules for personal accounts and modern rules for the treatment of liability.

    1. Golden rules

    First, we will interpret why liability is credited correlating it with the golden rules with the help of an example.

    Golden rules of accounting states-

    Debit the receiver, Credit the giver

    Example

    Lenovo Inc. acquired computer spares from its supplier XYZ Inc. for 5,00,000. The amount is still payable by Lenovo Inc. (ie.liability). As XYZ Inc. is the supplier of computer spares (ie. the giver of products & services), it is to be credited as per the golden rules.

    Journalizing this transaction in the books of Lenovo Inc. will be-

    Purchase A/c Debit 5,00,000 Expense A/c Debit all expenses and losses
     To XYZ Inc. A/c Credit  5,00,000 Personal A/c Credit the giver

    The above journal entry shows that XYZ has been credited because he is the supplier and also a liability for Lenovo Inc.

    2. Modern rules

    Now, we will determine the reason why liability is credited correlating it with the modern rules along with an example.

    Modern rules of accounting states-

    Credit the increase in liability

    Example

    During the accounting period Jan-Dec 20×2, Mr. Alex has already paid rent 10000 each month for 10 months. But he could not pay the rent for 2 months until the end of the period. So, rent 20000 is still payable (ie. liability) by Mr. Alex.

    The journal entry for outstanding rent will be as follows-

    Rent A/c Debit 20,000 Debit the increase in expense
     To Outstanding Rent A/c Credit  20,000 Credit the increase in liability

    The above entry shows an increase in liability of Mr. Alex as the amount of rent 20000 is payable by him.

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  1. This answer was edited.

    Yes, Arjun I will provide you with an exclusive list of all the liabilities in accounting and further classify them under short-term and long-term liabilities. The major reason behind this classification is only to develop a better understanding of liabilities. I hope this list will help you and fulRead more

    Yes, Arjun I will provide you with an exclusive list of all the liabilities in accounting and further classify them under short-term and long-term liabilities. The major reason behind this classification is only to develop a better understanding of liabilities. I hope this list will help you and fulfil your requirements.

    Short-Term Liabilities

    Meaning

    The term short-term liabilities refers to the short- term financial obligations of companies, firms or enterprises to make the payments to these loans within one accounting period(i.e., within a year). These loans are generally taken to meet day to day working capital requirements of an organization such as the purchase of raw materials. Short-term liabilities are also known as current liabilities.

    Exclusive List of Items

    1. Bills payable/Trade payable
    2. Sundry creditors
    3. Accrued liabilities
    4. Term debt
    5. Advances and deposits received
    6. Short-term obligations
    7. Unearned revenue
    8. Salaries and wages payables
    9. Sales tax payable
    10. Bank loan
    11. Outstanding expenses
    12. Merchandise accounts payable
    13. Deferred revenue
    14. Commercial paper
    15. Credit-card debt
    16. Bank overdraft
    17. Dividends payable
    18. Customer deposits
    19. Current portion of long-term debt
    20. Short-term provisions and reserves
    21. Accrued payroll
    22. Notes payable to banks
    23. Short-term loans and advances
    24. Rent payable
    25. Other short-term debts

     

    Long-Term Liabilities

    Meaning

    The term long-term liabilities refers to the long-term financial obligations of the firms, companies or enterprise which remains due for more than one accounting period. Generally, such loans are either taken to acquire fixed assets or to make payment to a long-term debt such as payments to debenture holders. Long-term liabilities are also known as long-term debt or non-current liabilities.

    Exclusive List of Items

    1. Long-term borrowings/debts
    2. Specific loans for purchasing fixed assets
    3. Deferred tax liabilities
    4. Derivative liabilities
    5. Pension obligations
    6. Capital leasing
    7. Car payments
    8. Convertible debt
    9. Long-term provisions and contingencies
    10. Bonds payable
    11. Pension liabilities
    12. Debentures
    13. Mortgages payable
    14. Public deposits
    15. Long-term warrants
    16. Long-term notes payable
    17. Loans from shareholders
    18. Lease contracts
    19. Post-retirement benefits reserve
    20. Deferred long-term liability charges
    21. Deferred compensation
    22. Other non-current liabilities

     

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  1. This answer was edited.

    Bad Debts In layman's language, Bad Debt is an expense incurred by a business, which is not repaid by the debtor, in the due course of time for reasons such as fraud, insolvency of the debtor, etc. We can also refer to it as Uncollectible Accounts Expense and Irrecoverable Debts. Meaning of LiabilitRead more

    Bad Debts

    In layman’s language, Bad Debt is an expense incurred by a business, which is not repaid by the debtor, in the due course of time for reasons such as fraud, insolvency of the debtor, etc. We can also refer to it as Uncollectible Accounts Expense and Irrecoverable Debts.

    Meaning of Liability

    Liabilities refer to the financial obligations of a business. In simple words, it is a sum of money owed by a debtor to a creditor under an agreement and repayable on a specified period. For example, Bank Loans, Accounts Payable, Bank Overdrafts, etc.

    Bad debts are an expense or a liability?

    Bad Debts are an expense to the business and not a liability as the amount that was expected to be received from the debtor is irrecoverable and has a negative effect in the books of accounts by way of reduction from the accounts receivable.

    It is recorded on the asset side of the balance sheet however, it is entered in the balance sheet as a contra asset account i.e. as a reduction from the accounts receivable. It is also recorded under operating expenses in the Income Statement as well as in the profit and loss a/c on the debit side.

    Therefore, we can easily conclude now that bad debts are an expense and not a liability.

    This concept is further explained with an example stated below.

    Example

    XYZ Ltd sells machinery to ABC Ltd. for 10,000 at 60 days credit. However, ABC Ltd is declared bankrupt and therefore can no longer pay the specified amount. This amount of 10,000 is an expense for XYZ Ltd and leads to a fall in the accounts receivables. Hence, it is not a liability for the company but an expense.

    Bad debts as shown in the Income statement

    (Extract of Income statement)

    Income statement

    Hope this helps.

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