The liability is the set of obligations and debts made to finance the organizational activity, considered in the accounting of companies.
The amounts of the liabilities originate from expenses, such as accounts payable to suppliers or the government, for example, being shown through the balance sheet.
While assets generate income for the company, such as accounts receivable from customers, machines or inventories, liabilities represent debts intended for the investment of these assets, such as the acquisition of raw materials with payment in installments.
The difference between assets and liabilities results in the company’s shareholders’ equity, also known as non-callable liabilities.
This consideration is due to the fact that it is not directly adding value, but that has no origins in obligations for the company. The more liabilities the company has, the less its equity will be.
Current and non-current liabilities
Current liabilities are those obligations that the company has and resolves within the period of the fiscal year, which is considered for 12 months.
These liabilities include, for example, supplier accounts, labor obligations, loans and financing, which will be paid within the period.
Otherwise, they are considered as non-current liabilities, settled only after the annual activity period and which are payable only in the long term, by creditors.
The obligations of this liability are settled with current assets, the most common being cash on hand. Another example is the receipt of customers in exchange for the debt of suppliers.
Current Liabilities correspond to accounts that can be realized within the company’s fiscal year, this period of 12 months from the balance sheet statement. It is also known as short-term liabilities.
Current liability obligations must be settled using current assets, which are the group of assets resulting from the business operation, such as accounts receivable from customers.
Loans for the acquisition of rights to non-current assets are included in current liabilities, provided that the amounts to be paid mature in the following year.
Examples of Current Liabilities
Included as subaccounts of the company’s current liabilities:
- Salaries, vacations, provisions and other rights and participation related to employees
- Banks and financial institutions
- Credits of partners and shareholders
Current and Noncurrent Liabilities
The liability is a chargeable obligation. Liabilities are understood as past and claimed transactions at a future date to the company, such as installment purchases. It makes up the company’s balance sheet, and once the difference is made in relation to the assets, it corresponds to the company’s equity.
Current liabilities are those payable in the short term. In accounting, it is said of those accounts to be settled in the following fiscal year, up to one year after the balance sheet.
In the case of the liability to be settled after the following fiscal year, or if the cycle of operations is longer than one year, this is part of the non-current liability, and is called a long-term liability.
Operating Current Liabilities and Financial Current Liabilities
The two terms are not provided for in the legislation, but are used in accounting management to calculate the need for working capital.
Operating current liabilities are those directly related to the company’s operation: payment of employees, suppliers, taxes, etc.
Current financial liabilities are monetary values such as trade bills and short-term loans.
It is recommended that each type of current liability be paid with its corresponding current asset. For example, that loans should be paid with the results of financial investments and not with receivables from customers, which should be allocated to operating accounts such as the payment of employees.
The need for working capital is calculated by the difference between operating current assets and operating current liabilities.