Types of Liabilities in a Business

Types of Liabilities in a Business

Types of Liabilities in a Business

Liabilities, laities and laities what could be the worst nightmare than this? A liability on any business will always haunt the owner of any business. Talking about types of laities in any business, there are three.

These three types of liabilities are as following:

  • Current liabilities
  • Non-Current Liabilities
  • Contingent Liabilities

Let’s talk about all three of them!!!




Current Liabilities

Current liabilities are those that are supposed to be paid off in near future. Or in other words, current liabilities are short-term liabilities that are supposed to be paid in given short period of time. These liabilities are paid within a current year and are not given extra-long time to pay off. Remember one thing, a company under liability, sometimes even uses their assets to pay off their debts. Some examples of current liabilities:

  • Bank loans
  • Accrued expenses
  • Bills that are yet to be paid
  • Interests
  • And short term loans

 

Non-Current Liabilities

Non-current liabilities are pretty easy to understand. They are contrary to the current liabilities, unlike current liabilities, these are supposed to be paid over a year of the span and there is no a limitation of one-year such type of liabilities. Companies take huge loans from banks or third parties on a long span of return time. They use this loan to increase their capital and assets so that in future they can pay off from the earned profit. Here Are some examples of Non-current liabilities.

  • Bonds payables
  • Deferred tax
  • Mortgage
  • Capital Lease
  • Long-term loans

 

Contingent Liabilities

This type of liability is not obvious. It all depends on the events that are going to take place in near future. For example, if a company violates copyrights of another company and other company files lawsuit of $100000 in court against the company 1 then in future of court approves this lawsuit and holding company one being responsible then that company will have to pay off this liability. While on the other hand, if the court does not approve such lawsuit then company A will not have to pay off any liabilities. This is simple!!!!

Types of Liabilities in a Business
Types of Liabilities in a Business

Here are some examples:

  • Lawsuits
  • Products warranty

That’s it!!!