A liability is something a person or company owes, usually a sum of money. Liabilities are settled over time through the transfer of economic benefits including money, goods, or services. Recorded on the right side of the balance sheet, liabilities include loans, accounts payable, mortgages, deferred revenues, bonds, warranties, and accrued expenses.
- Current Liabilities– It refers to those liabilities which fall due for payment in a relatively short period. These are also known as short term liabilities. Obligations which are payable within 12 months or within the operating cycle of a business are known as current liabilities. They are short-term liabilities usually arisen out of business activities. Examples of current liabilities are trade creditors, bills payable, outstanding expenses, bank overdraft etc.
- Non-current or Fixed Liabilities – Second among types of liabilities is non-current or fixed liabilities; they are long-term obligations of a business and are not payable within a year or an accounting period. They are generally used for the purchase of fixed assets. For example, long-term loans, bonds payable, debentures, etc.
- Contingent liabilities– are those liabilities that may or may not be incurred by a business depending on the outcome of a future occurrence. In case the occurrence does not happen, an organization is not liable to pay anything. They are required to be disclosed as soon the amount can be estimated and are shown as a footnote to the balance sheet.For t, financial cases pending, against the business, in the court of law; Gurantee undertaken on behalf of others. etc.