Debt Dictionary


Investment Dictionary -> Liabilities

Liabilities refer to legally binding obligations of companies and individuals to repay their debts. These obligations result from past transactions and may lead to change of possession or the provision of certain services. The transfer of assets or the procurement of services should occur within a specified time period or on demand.

Companies` liabilities represent a form of assets that can be used to finance future growth. In accounting, the liabilities of companies are reported on the balance sheet. They are typically assigned to two categories: current and long-term liabilities. The first category refers to all outstanding debt to creditors and suppliers that is due within a period of one year. The companies may repay it by converting some assets into cash. There are several major types of current liabilities. Accounts payable refer to the money that a person or a legal entity owes to employees, suppliers, or partners. Accrued expenses represent unpaid bills, typically marketing and distribution costs, which have not come due. Income taxes are one type of accrued expenses. Taxes are enforced contributions paid in the form of money or labor. A portion of the long-term debt may also come due in a certain quarter of the fiscal year. For this reason, it will be referred to as a current liability. Wages or compensations for work are also covered by this category.

The long-term liabilities of a company represent a category of debt that needs to be paid in a period that exceeds twelve months. Notes payable stand for debt that is issued to a single borrower. On the other hand, bonds payable are issued to a group of borrowers or to the general public. The capital lease obligations require the payment of rent for the use of property and plant facilities. The post-retirement benefit obligations refer to benefits that are paid under the terms of pension plans. Finally, other accrued expenses stand for deferred income tax or other obligations such as lawsuits that await settlement.

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