long-term liabilities

Examples of long-term liabilities in the following topics:

• Reporting Long-Term Liabilities

  • Debts that become due more than one year into the future are reported as long-term liabilities on the balance sheet.
  • This is an example of a long-term liability.
  • "Notes Payable" and "Bonds Payable" are also examples of long-term liabilities, and they often introduce an interesting distinction between current liabilities and long-term liabilities presented on a classified balance sheet.
  • What this example presents is the distinction between current liabilities and long-term liabilities.
  • Despite a Note Payable, Bonds Payable, etc., starting out as a long-term liability, the portion of that debt that is due within a year has to be backed out of the long-term liability and reported as a current liability.

• Current Maturities of Long-Term Debt

  • The portion of long-term liabilities that must be paid in the coming 12-month period are classified as current liabilities.
  • Long-term liabilities are liabilities with a due date that extends over one year, such as a notes payable that matures in 2 years.
  • Examples of long-term liabilities are debentures, bonds, mortgage loans and other bank loans (it should be noted that not all bank loans are long term since not all are paid over a period greater than one year. ) Also long-term liabilities are a way for a company to show the existence of debt that can be paid in a time period longer than one year, a sign that the company is able to obtain long-term financing .
  • The portion of long-term liabilities that must be paid in the coming 12-month period are classified as current liabilities.
  • The portion of the liability considered "current" is moved from the long-term liabilities section to the current liabilities section.

• Analyzing Long-Term Liabilities

  • Analyzing long-term liabilities combines debt ratio analysis, credit analysis and market analysis to assess a company's financial strength.
  • Long-term liabilities are obligations that are due at least one year into the future, and include debt instruments such as bonds and mortgages.
  • Analyzing long-term liabilities is done for assessing the likelihood the long-term liability's terms will be met by the borrower.
  • After analyzing long-term liabilities, an analyst should have a reasonable basis for a determining a company's financial strength.
  • Analyzing long-term liabilities is necessary to avoid buying the bonds of, or lending to, a company that may potentially become insolvent.

• Reporting Current Liabilities

  • Liabilities are disclosed in a separate section that distinguishes between short-term and long-term liabilities.
  • Short-term, or current liabilities, are listed first in the liability section of the statement because they have first claim on company assets.
  • In addition to current liabilities, long-term liabilities are listed in a separate section after current debt.
  • Long-term liabilities can include bonds, mortgages, and loans that are payable over a term exceeding one year.
  • However, for all long-term liabilities, any amounts due in the current fiscal year are reported under the current liability section.

• Classifying Liabilities

  • The two main categories of these are current liabilities and long-term liabilities.
  • Other long-term obligations, such as bonds, can be classified as current because they are callable by the creditor.
  • Long-term liabilities are reasonably expected not to be liquidated or paid off within the span of a single year.
  • These usually include issued long-term bonds, notes payables, long-term leases, pension obligations, and long-term product warranties.
  • Contingent liabilities can be current or long-term.

• Liabilities

  • Examples of long-term liabilities include long-term bonds, leases, pension obligations, and debentures.
  • Examples of current liabilities include wages, taxes, accounts payables, and short-term obligations (such as purchase from suppliers).
  • They usually include payables such as wages, accounts, taxes, and accounts payables, unearned revenue when adjusting entries, portions of long-term bonds to be paid this year, short-term obligations (e.g., from purchase of equipment).
  • Long-term liabilities: these liabilities are reasonably expected not to be liquidated within a year.
  • They usually include issued long-term bonds, notes payables, long-term leases, pension obligations, and long-term product warranties.

• Defining Liabilities

  • A liability is defined as an obligation of an entity arising from past transactions/events and settled through the transfer of assets.
  • A liability is defined by the following characteristics:
  • Any type of borrowing from persons or banks for improving a business or personal income that is payable in the current or long term.
  • Types of liabilities found on a company's balance sheet include: current liabilities like notes payable, accounts payable, interest payable, and salaries payable.
  • Long-term liabilities have maturity dates that extend past one year, such as bonds payable and pension obligations.

• Balance Sheets

  • A standard balance sheet has three parts: assets, liabilities, and ownership equity; Asset = Liabilities + Equity.
  • Assets are followed by the liabilities.
  • According to the accounting equation, net worth must equal assets minus liabilities.
  • A personal balance sheet lists current assets, such as cash in checking accounts and savings accounts; long-term assets, such as common stock and real estate; current liabilities, such as loan debt and mortgage debt due; or long-term liabilities, such as mortgage and other loan debt.
  • A small business balance sheet lists current assets, such as cash, accounts receivable and inventory; fixed assets, such as land, buildings, and equipment; intangible assets, such as patents; and liabilities, such as accounts payable, accrued expenses, and long-term debt.

• Current Ratio

  • It shows the number of times short-term liabilities are covered by cash.
  • Typical current assets include cash, cash equivalents, short-term investments, accounts receivable, inventory, and the portion of prepaid liabilities that will be paid within a year.
  • If current liabilities exceed current assets (the current ratio is below 1), then the company may have problems meeting its short-term obligations.
  • In such a situation, firms should consider investing excess capital into middle and long term objectives.
  • If an organization has good long-term prospects, it may be able to borrow against those prospects to meet current obligations.

• Liabilities and Equity

  • The balance sheet contains details on company liabilities and owner's equity.
  • A liability is defined by the following characteristics:
  • Any type of borrowing from persons or banks for improving a business or personal income that is payable during short or long time;
  • If liability exceeds assets, negative equity exists.
  • In an accounting context, shareholders' equity (or stockholders' equity, shareholders' funds, shareholders' capital, or similar terms) represents the remaining interest in assets of a company, spread among individual shareholders of common or preferred stock.