Liability - Revision history

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-A '''liability''' is a debt owed by a company that requires the entity to give up an economic benefit (cash, assets, etc.) to settle past transactions or events. A liability is typically an amount owed by a company to a [[Supplier|supplier]], bank, lender, or other provider of goods, services, or loans. Liabilities can be listed under [[Accounts Payable|accounts payable]], and are credited in the double entry bookkeeping method of managing accounts. To settle a liability, a [[Business|business]] must sell or hand over an economic benefit. An economic benefit can include cash, other company [[Asset|assets]], or the fulfillment of a [[Service|service]].<ref>Definition of a Liability [https://debitoor.com/dictionary/liabilities Debitoor]</ref>
+A '''liability''' is a debt owed by a company that requires the entity to give up an economic benefit (cash, assets, etc.) to settle past transactions or events. A liability is typically an amount owed by a company to a supplier, bank, lender, or other provider of goods, services, or loans. Liabilities can be listed under accounts payable, and are credited in the double entry bookkeeping method of managing accounts. To settle a liability, a business must sell or hand over an economic benefit. An economic benefit can include cash, other company assets, or the fulfillment of a service.<ref>[https://debitoor.com/dictionary/liabilities Definition of a Liability]</ref>
-Liabilities are categorized as current or non-current depending on their temporality. They can include a future service owed to others; short- or long-term borrowing from banks, individuals, or other entities; or a previous transaction that has created an unsettled obligation. The most common liabilities are usually the largest like accounts payable and bonds payable. Most companies will have these two line items on their [[Balance Sheet|balance sheet]], as they are part of ongoing current and long-term operations. Liabilities are a vital aspect of a company because they are used to finance [[Business Operations|operations]] and pay for large [[Business Expansion|expansions]]. They can also make transactions between businesses more efficient. For example, in most cases, if a wine supplier sells a case of wine to a restaurant, it does not demand payment when it delivers the goods. Rather, it invoices the restaurant for the purchase to streamline the dropoff and make paying easier for the restaurant. The outstanding money that the restaurant owes to its wine supplier is considered a liability. In contrast, the wine supplier considers the money it is owed to be an asset.<ref>Explaining Liabilities [https://www.investopedia.com/terms/l/liability.asp Investopedia]</ref>
+Liabilities are categorized as current or non-current depending on their temporality. They can include a future service owed to others; short- or long-term borrowing from banks, individuals, or other entities; or a previous transaction that has created an unsettled obligation. The most common liabilities are usually the largest like accounts payable and bonds payable. Most companies will have these two line items on their balance sheet, as they are part of ongoing current and long-term operations. Liabilities are a vital aspect of a company because they are used to finance operations and pay for large expansions. They can also make transactions between businesses more efficient. For example, in most cases, if a wine supplier sells a case of wine to a restaurant, it does not demand payment when it delivers the goods. Rather, it invoices the restaurant for the purchase to streamline the dropoff and make paying easier for the restaurant. The outstanding money that the restaurant owes to its wine supplier is considered a liability. In contrast, the wine supplier considers the money it is owed to be an asset.<ref>[https://www.investopedia.com/terms/l/liability.asp Explaining Liabilities]</ref>
-'''Classification of Liabilities<ref>Classification of Liabilities [https://en.wikipedia.org/wiki/Liability_(financial_accounting) Wikipedia]</ref>'''<br />
+'''Classification of Liabilities<ref>[https://en.wikipedia.org/wiki/Liability_(financial_accounting) Classification of Liabilities]</ref>'''<br />
 Liabilities are reported on a balance sheet and are usually divided into two categories:
 *Current liabilities – these liabilities are reasonably expected to be liquidated within a year. They usually include payables such as wages, accounts, taxes, and accounts payable, unearned revenue when adjusting entries, portions of long-term bonds to be paid this year, short-term obligations (e.g. from purchase of equipment).OR' current liabilities are obligations whose liquidation is reasonably expected to require the use of current assets, the creation of other current liabilities, or the provision of services within the next year or operating cycle, whichever is longer.
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 [[File:Long term liabilities.jpg|400px|Long term liabilities.jpg]]<br />
-source: [https://slideplayer.com/slide/4274519/ Coby Harmon]
+source: Coby Harmon
-'''Contingent Liability<ref>What is a Contingent Liability? [https://efinancemanagement.com/financial-accounting/contingent-liability-meaning-importance eFinance Management]</ref>'''<br />
+'''Contingent Liability<ref>[https://efinancemanagement.com/financial-accounting/contingent-liability-meaning-importance What is a Contingent Liability?]</ref>'''<br />
 Contingent Liability is the best guesstimate by the company of a situation that might turn into a liability. Whether or not a contingent liability turns into an actual liability depends on the happening of a future event. Suppose an employee sues a company for $100,000. Whether or not a company will pay this amount depends on the outcome of the case. Companies create a provision for a contingent liability in anticipation of any future liability or liabilities. By making a provision, the company’s makes sure that they are ready for any such situation even if such liability may or may not occur. There are two types of contingent liabilities:
 *Explicit: Such liabilities are the obligation of the government to make payments in case any specific event occurs. Assessing the explicit contingent liabilities could be tough since these items do not appear until they occur. Such liabilities are a huge burden, and therefore could be a drain on the future government finances. Some of the examples of explicit contingent liabilities are:
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-'''The relationship between liabilities and assets<ref>The relationship between liabilities and assets [https://capital.com/liability-definition Capital.com]</ref>'''<br />
+'''The relationship between liabilities and assets<ref>[https://capital.com/liability-definition The relationship between liabilities and assets]</ref>'''<br />
-Assets are things a company owns. These include tangible items, such as equipment, machinery, buildings, and intangible items, such as interest owed, accounts receivable, [[Intellectual Capital|intellectual property]] and patents.
+Assets are things a company owns. These include tangible items, such as equipment, machinery, buildings, and intangible items, such as interest owed, accounts receivable, intellectual property and patents.
-If we subtract the company’s liabilities from its assets, we will get the owners’ or [[Shareholders' Equity|shareholders’ equity]]:
+If we subtract the company’s liabilities from its assets, we will get the owners’ or shareholders’ equity:
 Assets – Liabilities = Shareholders' Equity
@@ Line 54: / Line 54: @@
-===References===
+== See Also ==
 <references/>

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 Liabilities are categorized as current or non-current depending on their temporality. They can include a future service owed to others; short- or long-term borrowing from banks, individuals, or other entities; or a previous transaction that has created an unsettled obligation. The most common liabilities are usually the largest like accounts payable and bonds payable. Most companies will have these two line items on their [[Balance Sheet|balance sheet]], as they are part of ongoing current and long-term operations. Liabilities are a vital aspect of a company because they are used to finance [[Business Operations|operations]] and pay for large [[Business Expansion|expansions]]. They can also make transactions between businesses more efficient. For example, in most cases, if a wine supplier sells a case of wine to a restaurant, it does not demand payment when it delivers the goods. Rather, it invoices the restaurant for the purchase to streamline the dropoff and make paying easier for the restaurant. The outstanding money that the restaurant owes to its wine supplier is considered a liability. In contrast, the wine supplier considers the money it is owed to be an asset.<ref>Explaining Liabilities [https://www.investopedia.com/terms/l/liability.asp Investopedia]</ref>
@@ Line 21: / Line 9: @@
-[[File:Current Liabilities.png|200px|Current Liabilities]]<br />
+[[File:Current Liabilities.png|300px|Current Liabilities]]<br />
 source: [https://byjus.com/commerce/what-is-current-liabilities/ ByJu's]
@@ Line 28: / Line 16: @@
-[[File:Long term liabilities.jpg|300px|Long term liabilities.jpg]]<br />
+[[File:Long term liabilities.jpg|400px|Long term liabilities.jpg]]<br />
 source: [https://slideplayer.com/slide/4274519/ Coby Harmon]
@@ Line 43: / Line 31: @@
-[[File:Contingent Liabilities.png|300px|Contingent Liabilities]]<br />
+[[File:Contingent Liabilities.png|400px|Contingent Liabilities]]<br />
 source: eFinance Management
@@ Line 52: / Line 40: @@
 *Credit companies also consider the amount and nature of contingent liabilities while extending a loan to a company.
 *Before making an investment, investors might also want to know the probable liabilities that the company might have to pay in the future.
 ===References===
 <references/>

@@ Line 21: / Line 21: @@
-[[File:Current Liabilities.png|300px|Current Liabilities]]<br />
+[[File:Current Liabilities.png|200px|Current Liabilities]]<br />
 source: [https://byjus.com/commerce/what-is-current-liabilities/ ByJu's]
@@ Line 28: / Line 28: @@
-[[File:Long term liabilities.jpg|400px|Long term liabilities.jpg]]<br />
+[[File:Long term liabilities.jpg|300px|Long term liabilities.jpg]]<br />
 source: [https://slideplayer.com/slide/4274519/ Coby Harmon]

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 A '''liability''' is a debt owed by a company that requires the entity to give up an economic benefit (cash, assets, etc.) to settle past transactions or events. A liability is typically an amount owed by a company to a [[Supplier|supplier]], bank, lender, or other provider of goods, services, or loans. Liabilities can be listed under [[Accounts Payable|accounts payable]], and are credited in the double entry bookkeeping method of managing accounts. To settle a liability, a [[Business|business]] must sell or hand over an economic benefit. An economic benefit can include cash, other company [[Asset|assets]], or the fulfillment of a [[Service|service]].<ref>Definition of a Liability [https://debitoor.com/dictionary/liabilities Debitoor]</ref>
-Liabilities are categorized as current or non-current depending on their temporality. They can include a future service owed to others; short- or long-term borrowing from banks, individuals, or other entities; or a previous transaction that has created an unsettled obligation. The most common liabilities are usually the largest like accounts payable and bonds payable. Most companies will have these two line items on their balance sheet, as they are part of ongoing current and long-term operations. Liabilities are a vital aspect of a company because they are used to finance operations and pay for large expansions. They can also make transactions between businesses more efficient. For example, in most cases, if a wine supplier sells a case of wine to a restaurant, it does not demand payment when it delivers the goods. Rather, it invoices the restaurant for the purchase to streamline the dropoff and make paying easier for the restaurant. The outstanding money that the restaurant owes to its wine supplier is considered a liability. In contrast, the wine supplier considers the money it is owed to be an asset.<ref>Explaining Liabilities [https://www.investopedia.com/terms/l/liability.asp Investopedia]</ref>
+Liabilities are categorized as current or non-current depending on their temporality. They can include a future service owed to others; short- or long-term borrowing from banks, individuals, or other entities; or a previous transaction that has created an unsettled obligation. The most common liabilities are usually the largest like accounts payable and bonds payable. Most companies will have these two line items on their [[Balance Sheet|balance sheet]], as they are part of ongoing current and long-term operations. Liabilities are a vital aspect of a company because they are used to finance [[Business Operations|operations]] and pay for large [[Business Expansion|expansions]]. They can also make transactions between businesses more efficient. For example, in most cases, if a wine supplier sells a case of wine to a restaurant, it does not demand payment when it delivers the goods. Rather, it invoices the restaurant for the purchase to streamline the dropoff and make paying easier for the restaurant. The outstanding money that the restaurant owes to its wine supplier is considered a liability. In contrast, the wine supplier considers the money it is owed to be an asset.<ref>Explaining Liabilities [https://www.investopedia.com/terms/l/liability.asp Investopedia]</ref>
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 Liabilities + Shareholders’ Equity = Assets

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	Liabilities are categorized as current or non-current depending on their temporality. They can include a future service owed to others; short- or long-term borrowing from banks, individuals, or other entities; or a previous transaction that has created an unsettled obligation. The most common liabilities are usually the largest like accounts payable and bonds payable. Most companies will have these two line items on their balance sheet, as they are part of ongoing current and long-term operations. Liabilities are a vital aspect of a company because they are used to finance operations and pay for large expansions. They can also make transactions between businesses more efficient. For example, in most cases, if a wine supplier sells a case of wine to a restaurant, it does not demand payment when it delivers the goods. Rather, it invoices the restaurant for the purchase to streamline the dropoff and make paying easier for the restaurant. The outstanding money that the restaurant owes to its wine supplier is considered a liability. In contrast, the wine supplier considers the money it is owed to be an asset.<ref>Explaining Liabilities [https://www.investopedia.com/terms/l/liability.asp Investopedia]</ref>		Liabilities are categorized as current or non-current depending on their temporality. They can include a future service owed to others; short- or long-term borrowing from banks, individuals, or other entities; or a previous transaction that has created an unsettled obligation. The most common liabilities are usually the largest like accounts payable and bonds payable. Most companies will have these two line items on their balance sheet, as they are part of ongoing current and long-term operations. Liabilities are a vital aspect of a company because they are used to finance operations and pay for large expansions. They can also make transactions between businesses more efficient. For example, in most cases, if a wine supplier sells a case of wine to a restaurant, it does not demand payment when it delivers the goods. Rather, it invoices the restaurant for the purchase to streamline the dropoff and make paying easier for the restaurant. The outstanding money that the restaurant owes to its wine supplier is considered a liability. In contrast, the wine supplier considers the money it is owed to be an asset.<ref>Explaining Liabilities [https://www.investopedia.com/terms/l/liability.asp Investopedia]</ref>
		+
		+
		+	'''The relationship between liabilities and assets<ref>The relationship between liabilities and assets [https://capital.com/liability-definition Capital.com]</ref>'''<br />
		+	Assets are things a company owns. These include tangible items, such as equipment, machinery, buildings, and intangible items, such as interest owed, accounts receivable, [[Intellectual Capital\|intellectual property]] and patents.
		+
		+	If we subtract the company’s liabilities from its assets, we will get the owners’ or [[Shareholders' Equity\|shareholders’ equity]]:
		+
		+	Assets – Liabilities = Shareholders' Equity
		+
		+	Generally, this fundamental accounting equation is presented as follows:
		+
		+	Liabilities + Shareholders’ Equity = Assets

← Older revision		Revision as of 21:05, 26 March 2021
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−	'''~~Content Coming Soon~~'''	+	A '''liability''' is a debt owed by a company that requires the entity to give up an economic benefit (cash, assets, etc.) to settle past transactions or events. A liability is typically an amount owed by a company to a [[Supplier\|supplier]], bank, lender, or other provider of goods, services, or loans. Liabilities can be listed under [[Accounts Payable\|accounts payable]], and are credited in the double entry bookkeeping method of managing accounts. To settle a liability, a [[Business\|business]] must sell or hand over an economic benefit. An economic benefit can include cash, other company [[Asset\|assets]], or the fulfillment of a [[Service\|service]].<ref>Definition of a Liability [https://debitoor.com/dictionary/liabilities Debitoor]</ref>
		+
		+	Liabilities are categorized as current or non-current depending on their temporality. They can include a future service owed to others; short- or long-term borrowing from banks, individuals, or other entities; or a previous transaction that has created an unsettled obligation. The most common liabilities are usually the largest like accounts payable and bonds payable. Most companies will have these two line items on their balance sheet, as they are part of ongoing current and long-term operations. Liabilities are a vital aspect of a company because they are used to finance operations and pay for large expansions. They can also make transactions between businesses more efficient. For example, in most cases, if a wine supplier sells a case of wine to a restaurant, it does not demand payment when it delivers the goods. Rather, it invoices the restaurant for the purchase to streamline the dropoff and make paying easier for the restaurant. The outstanding money that the restaurant owes to its wine supplier is considered a liability. In contrast, the wine supplier considers the money it is owed to be an asset.<ref>Explaining Liabilities [https://www.investopedia.com/terms/l/liability.asp Investopedia]</ref>