Liability is typically an amount owed by a company to a bank, supplier, lender or another provider of good and services or loans. It is a legal, financial debt that arises during business operation. The debt is settled over time over the allocation of economy reimbursements that comprise of goods, services or money. Liability is noted on the right side of the balance sheet and consist of mortgages, differed profits and accrued expenditures. Obligations are very imperative because they are used to pay for massive expansions and finance operation (Williams, 2015). Additionally, the debt is used to make the transaction between businesses more efficiently. There are two types of debt which comprise current liability and long-term liabilities. Current liability is arrears owed within one year while long terms liability are debts owed over extended period. In this case, examples of current liability comprise of account payable and other bills that are due to suppliers. On the other hand, examples of long term liability include differed tax obligations, loans, and any pension payable. The characteristics of responsibility include transactions of past events, transfer of assets, and necessity of a particular enterprise.
Keywords: long term liability, short-term liability.
Writers choice
Characteristics of liabilities
Transactions of past events. The debt becomes a liability of an enterprise until something happens to be the liability of that enterprise (Giné, " Karlan, 2014). Therefore, there must be a rise in obligations of past transactions. The transactions and events that result in liability include the acquisition of good and services, act by an organization that compels it to pay or otherwise sacrifices asset to settle its voluntary non- reciprocal handovers to owners and others.
Transfer of assets. The essence of liability is a duty or requirement to sacrifice asset in the future. The fundamental element of commitment is the transfer of assets by an enterprise or otherwise expand assets to satisfy the responsibilities that have been imposed on (Williams, 2015). Most liabilities comprise of financial statement that qualifies as a liability since they require an organization to sacrifice assets in the future.
Obligation of a particular enterprise. The requirements that underline liabilities stems from contracts and other agreements that are enforceable by courts or from the government that has force law. This is because, responsibilities relate to the specific organization and require the future sacrifice of the asset (Williams, 2015).
Importance of classifying liabilities as long-term or short-term
Short-term obligations are separated from long-term liabilities because, current liabilities are responsibilities that are due within one year of the balance sheet date and requires cash payments (Giné, " Karlan, 2014). This is significant to monetarist analysts, owners of the company and executive of the corporation. Therefore, knowing the accountabilities that are payable within one year and the expanse of the asset is very crucial. In this case, current liability comprises of accrued expenses, sale taxes payable, bank account overdraft, income tax payable, and interest owed. On the other hand, long term liability includes of a capital lease, pension liabilities, post-retirement health care liability revenues, derivative liabilities and differed income tax.
Conclusion
Therefore, there are two main types of liability. Short-term liability and long-term liability. This is very important because they are used to pay for massive expansions and finance operation. Additionally, the debt is used to make the transaction between businesses more efficiently. The three main characteristics of liability include sales of past events, transfer of assets, and the obligation of a particular enterprise.
References
Giné, X., " Karlan, D. S. (2014). Group versus individual liability: Short and long-term evidence from Philippine microcredit lending groups. Journal of Development Economics, 107, 65-83.
Williams, S. (2015). MGT 462: Compensation.
