Liabilities
Liabilities are the obligations a business owes to external parties, arising from past transactions and settled in the future by transferring cash, goods, or services.
What it is
See it move
The infographic is a split bar representing total liabilities of €110,000 divided into two segments: current liabilities (due within one year) and non-current liabilities (due beyond one year). A note illustrates the concept with a concrete transaction: purchasing €15,000 of materials on credit immediately creates a current liability. Together the two segments sum to the total financial obligations the firm owes to outside parties.
The formula
Variables
- Total assets of the entity (€)
- Owners' equity (net assets) (€)
Rearrangement of the fundamental accounting equation (Assets = Liabilities + Equity).
Check yourself
A company's year-end balance sheet includes three items: (1) an invoice payable to a supplier in 30 days; (2) a bank loan repayable in three years; (3) wages owed to employees for the final week of December but not yet paid. How should these three items be classified?