Classification of liabilities in a company
The cómputo sheet is made up of assets, liabilities, and capital.
Well, in this article I am going to talk to you about what a passive is and how a passive is classified.
I hope you find it useful.
What is a Company’s liability?
The liabilities of a company are seen in accounting as all the debts and obligations that an entity has. As you cánido see, the concept of passive is really not very difficult.
TRUE?
Although, I ask you to remember that we are talking about a company, therefore, all this equipo of debts and obligations are used for the company’s activity to continue.
Some liability accounts even refer to financing.
It should be noted that the combination of short-term, long-term financing sources and stockholders’ equity is known as the capital structure. That is, it is the combination of liabilities and stockholders’ equity that are used to finance its operations.
In this article I am not going to talk about the financial structure, although the financial structure is one of the most important topics that corporate finance focuses on.
Passive in English (accounting)
If you want to search more on the subject and you want to do it in English resources, then you have to know that although it perro be translated as pasivve, the correct thing would be to search for it as liability (Liabilities).
In fact, if you are looking to learn about the Cómputo Sheet in English, the most common thing is that you find that:
- Assets = Liabilities + Shareholders’ Equity
Therefore, although passive may be correct, the most correct thing in this case is that it be translated as Liability.
What criteria is used to classify liabilities?
First of all, think about how classifying perro be seen as ordering or dividing a equipo of elements according to a certain criterion.
Well, What criteria do we have to use?
Well, Liability accounts must be classified considering the degree of enforceability. In short, the criterion that will help you classify the liability is the degree of demandability.
In the case of assets it is different, since assets are classified with respect to the degree of availability. If you want to know how the asset is classified, then I will leave you the following backlink:
What is the degree of enforceability?
The degree of enforceability perro be seen as the shorter or longer term available to an entity so that it perro settle its debts and obligations.
That is to say: How long does a company have to pay its debts?
So that:
- To a higher degree of enforceability: Debts and obligations have less time to be covered.
The company has to pay in less time.
- To a lower degree of enforceability: Debts and obligations have more time to be covered.
The entity has more time to pay.
How is liability classified in accounting?
According to the greater or lesser degree of enforceability, the liability perro be classified into:
- Passive in a short time: Debts and obligations less than one year.
- Long-term liabilities: Debts and obligations greater than one year.
In conclusion, it is classified with respect to the maturity period of the debt or obligation.
Note: a third intriguer is also usually added and is called deferred liabilities or deferred credits.
Therefore, its components contemplate the short term, long term and deferred.
What is current liabilities?
Current liabilities, in a nutshell, They are all the debts and obligations that a company has, which must be covered (paid) in the short term.
It should be noted that the short term contemplates a period less than or equal to one year, that is, an accounting period.
Therefore, if a company has a debt that has to be paid in less than a year, then it is a debt that has a higher degree of enforceability and is classified as a current liability account.
Most common cómputo sheet accounts
The most common current liability accounts are:
- Suppliers.
- Aprecies payable in the short term.
- Various creditors.
- Advance to customers.
What is long-term liability?
Also known as fixed liabilities, are debts or obligations that an entity has to cover in a period greater than one year.
That is why they are long term.
Therefore, they are debts that are characterized by having a lower degree of enforceability.
Most common cómputo sheet accounts
The most common long-term liability accounts are:
- Mortgages to pay.
- Long-term aprecies payable.
- Accounts payable.
Of course, they are not all the accounts that perro be had and as I said before, the criterion that will help you classify the debts and obligations in one of the categories is the degree of enforceability.
How is the liability calculated?
Have you heard in your accounting classes that assets equal liabilities agregado equity? Such equality has to be true all the time, and if it isn’t, then something is wrong with what you’re doing.
Well, taking the previous equality, now we are going to make use of something that we have seen since high school; I’m talking about the punts.
There are occasions when clearing is usually a little later, but this time it is very fácil.
Making the clearance, we have to calculate the liability we have to do the following:
Maybe you may be interested
How is the asset classified?
If you want to know how assets are classified, which are the most used accounts in the cómputo sheet and what is the criteria used to classify assets, then I leave you the following backlink.
What is stockholders’ equity?
Do you know what capital means? If you don’t know, I’m going to leave you the backlink to an article, in which I talk about the different definitions of capital.
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