What are liabilities?

A popular phrase states that money calls to money. You have to invest money to make money. Liabilities are important for the growth of a company since they finance its activity, you just have to keep track of them so that they do not become a problem for your business.

While assets tell you what is happening with the capital, liabilities show you the origin of those resources. The reason why liabilities are incurred tells us whether the business is going through a good or bad time.

Liabilities are what is owed, the obligations incurred by the business in the course of its financial operations and which are paid over time through transfers, whether in cash, goods or services. They arise from a loss, an expense or a financial obligation.

What are liabilities for?

Liabilities are important because:

• It tells us about the financial health of the business (along with assets).

• It tells us about the liability we acquire, commitments for cash, services or other obligation.

• It funds and runs the assets of your business.

• Gives information about your external sources of financing.

• Makes business-to-business transactions easier and more efficient.

• Avoid defaults by managing the types of liabilities.

How to calculate liabilities?

The triad of assets, liabilities and equity makes up the balance sheet of your business. These accounts are interrelated and must be balanced. Their formula varies depending on what you want to calculate:

• Equity= assets - liabilities

• Assets= liabilities + equity

• And liabilities= assets - equity

Types of liabilities

Liabilities are separated into fixed (or non-current) liabilities and current liabilities. They are separated according to their temporality, i.e. the time it will take to pay the debt.

Fixed liabilities: liabilities to be paid in the long term, one year or more, are considered. For example, long-term loans, a mortgage in its entirety, accrued expenses that have not been paid on time, long-term debts with other companies, deferred taxes, long-term debts with suppliers, and so on.

Your business is expected to be able to pay its long-term debts and obligations with future financial transactions or profits.

Current Liabilities: liabilities payable in the short term, in less than one year, are considered. Taxes, utility expenses, short-term supplier contracts, goods on credit and other short-term payables