CLASSIFICATION OF LIABILITIES

CLASSIFICATION  OF  LIABILITIES

Liabilities are shown in the Balance Sheet on the left-hand side. They may be divided as follow:

(i)              Non-Current Liabilities: These liabilities are those liabilities which are not payable by the business in the next year. They mainly include long-term loans, borrowings or debentures, etc. Funds from this source are used for acquiring fixed assets.

(ii)            Current Liabilities: These liabilities are payable by the business within a year. Examples are trade creditors, bill payable, outstanding expenses, bank overdraft, etc.

(iii)          Owner’s Funds: The amount owing to the proprietors as capital is a class by itself. It includes undistributed profits and reserve besides capital. It is equal to the net assets of the business and is defined as the difference between assets and liabilities.

 

u Contingent Liabilities:

Contingent Liability is a liability that become payable on the happening of an event. In case, the event does not happen, no amount is payable. Such liabilities are not accounted and are not shown in the Balance Sheet; they are disclosed by way of a notice. Examples are:

(i)              Liabilities in Respect of Bills Discounted: If the firm got its bills receivable discounted with bank, the primary liability will be that of the acceptor. If the acceptor does not pay, then it becomes firm’s liabilities.

(ii)            Guarantee for Loan: If the has stood surety for a loan, it will be liable to pay the amount if the other person fails to meet his obligation.

(iii)         Disputed Claims: If some other party has lodged a claim against the firm, the firm will be liable to pay if the claim succeeds.

 

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