Liabilities represent a part of an organization’s balance sheet. Balance sheet of an organization is based on accounting equation.
Assets = Liabilities + Owner’s Equity
Liabilities are said to be current liabilities if their payment is due within an accounting period. Generally, current liabilities are supposed to be paid off within one year. Long term liabilities may be paid after 3 to 5 years. An organization’s liabilities can be divided into two broad categories known liabilities (determinable liabilities) and unknown liabilities (non-determinable liabilities).
Known liabilities are those liabilities about which organization knows exactly how much dollar amount the organization owe and when their payment will be due.
- Accounts Payable
- Employees Payroll Liabilities
- Sales Tax
unknown liabilities are the estimates of liabilities because the exact amount of liabilities is non-determinable. These estimates are provisions.
- Warranty Liability
- Income Tax Payable
- Property Tax
An accountant must be careful not to look these liabilities.