Balance sheet is a statement of financial position which shows the assets, liabilities and equity of a company. This article will only focus on the types of liabilities.
Firstly, what is the meaning of liability? Liability is a debt owe by a company organization to outsiders. Example of liabilities are creditors, bank overdraft, salaries owing, etc.
There are two types of liabilities, they are; Current liabilities and long-term liabilities. Long-term liabilities are also known as non current liabilities.
What Is The Difference Between Current Liabilities And Long-term Liabilities?
The major difference between current liabilities and non current liabilities are explained in details below:
CURRENT LIABILITIES
Current liabilities are your debts which need to be settled within the year of current accounting period. Some examples of current liabilities (CL) include: Account payables (creditors), Short-term bank loan, accrued expenses, prepaid incomes.
NON-CURRENT LIABILITIES
Non-current or long-term liabilities are debts of the business that are due beyond one year or the normal operating cycle of the business. Non-current liabilities are your debts which are due in more than one year from the current accounting period. Examples of Non-Current Liabilities (NCL): 5 year loans, 10 year loans, debentures.
Conclusion
Current liabilities are also known as short-term liabilities are obligations that a company should settle in a short period while long-term liabilities are financial obligations that a company should settle in a long period of time.
Liabilities are not as bad as people think it is, every business must have it, but the most important thing is that we should not allow our business liabilities to be greater than our assets.
0 Comments