Introduction to Accounting

Liabilities are obligations or debts that an enterprise has to pay at some time in the future. They represent creditors’ claims on the firm’s assets. Both small and big businesses find it necessary to borrow money at one time or the other, and to purchase goods on credit. Super Bazar, for example, purchases goods for Rs.

, on credit for a month from Fast Food Products on March , . If the balance sheet of Super Bazaar is prepared as at March , , Fast Food Products will be shown as creditors on the liabilities side of the balance sheet. If Super Bazaar takes a loan for a period of three years from Delhi State Co-operative Bank, this will also be shown as a liability in the balance sheet of Super Bazaar. Liabilities are classified as long-term liabilities and short-term liabilities (also known as short-term liabilities).

Long-term liabilities are those that are usually payable after a period of one year, for example, a term loan from a financial institution or debentures (bonds) issued by a company. Short-term liabilities are obligations that are payable within a period of one year, for example, creditors, bills payable, bank overdraft. Amount invested by the owner in the firm is known as capital. It may be