Liabilities: owing to someone else.

Liabilities are grouped like assets. Those you can easily pay - or be demanded to pay - are called current (or short-term) liabilities. The most usual current liabilities are Accounts Payable - like the local office supply store, materials dealer for your type of business, etc. Equally as common are payroll and payroll tax liabilities. These are followed by notes or loans payable. Like with assets, these are usually scheduled for payoff within the coming year.

The next group of liabilities are long-term liabilities. Things like mortgages, extended term loans and similar things. One particular note about loans is that they are often separated into short-term and long-term parts. If $1,000 of a $10,000 loan will be paid off within the coming year, that $1,000 will be classified as short-term. The remainder will be shown in the long-term part of the liabilities. As the loan progresses, the short-term and long-term balances are adjusted to show realistic claims against your business. This may be done annually, quarterly or even monthly. The larger and more heavily you rely on financing for business operations, the more important it will be for these figures to be kept accurate. I am opposed to any more debt than necessary. Who do you want having a claim on your business? You or someone else you may not even know?

The last part of liabilities is the unusual or irregular items. In the case of a business that owes another business, transactions may be run through a "suspense account". This is an account that holds amounts due to or from one internal businsess to or from another internal business. Other uses for a suspense account would be items you owe somebody but are not "encumberances" to your business. For example, I issued a check to someone recently and the individual lost the check. Consequently, when I voided the check for re-issue, I increased my cash and a suspense account in the liabilities until I would replace the check. The new check would then reduce cash and the offsetting "other side of the entry" would reduce the suspense account as well. Suspense accounts can be asset or liability accounts. You can make that determination based on what you will be putting into that account as a general rule.

When you're starting a business, some of these things will be unnecessary. If you have questions about them, let me know & I can go into them in greater depth.

Until then, have a great day.

Gary