are termed as current or short-term liabilities. These include bank overdraft, creditors, bills payable, outstanding expenses, etc. (c) Contingent liabilities These are the liabilities which are not certain at the time of preparation of balance sheet. These liabilities may or may not occur.
These are the liabilities which will become payable only on the happening of some specific event which itself is not certain, otherwise these need not be paid. Such liabilities are as follows: Liabilities for bills discounted In case a bill discounted with the bank is dishonoured by the acceptor on the due date, the firm will become liable to the bank. Accountancy - Liability in respect of a suit pending in a court of law This would become an actual liability if the suit is decided against the firm. Liability in respect of a guarantee given for another person The firm would be liable to pay the amount if the person for whom the guarantee is given fails to meet his obligation.
Tutorial note i) Contingent liabilities are not shown in the balance sheet. They are, however, shown as a foot note just below the balance sheet so that the existence of such liabilities may be revealed. ii) Capital: Capital is money or money’s worth contributed by the owner to the business for the purpose of carrying on business. The difference between assets and liabilities is owner’s equity = capital contributed + accumulated profits.
. Differences between trial balance and balance sheet The following are the differences between trial balance and balance sheet: Basis Trial balance Balance sheet . Nature Trial balance is a list of ledger balances on a particular date. Balance sheet is a statement showing the position of assets and liabilities on a particular date.
. Purpose Trial balance is prepared to check the arithmetical accuracy of the accounting entries made. Balance sheet is prepared to ascertain the financial position of a business. .
Contents It is a summary of balances of all accounts – personal, real and nominal accounts. It is a statement showing the closing balances