Liabilities are a company’s debts, or the amount of money it owes other parties, such as lenders or suppliers. When you list liabilities on your small business’s balance sheet, you separate them into two subsections: current liabilities and long-term liabilities. Current liabilities are those that you expect to pay within one year. Long-term liabilities are those you expect to pay after a year. The amount of your small business’s total liabilities, or total debt, you must report on your balance sheet equals the sum of your current and long-term liabilities.
Step 1
Determine from your accounting records the amount of your current liabilities, such as accounts payable, wages payable, short-term notes and the portion of long-term debt due within one year. Also, include money you have already received from customers for which you have not yet performed services, called unearned revenue. For example, assume your small business has $50,000 in accounts payable, $20,000 in short-term notes and $5,000 in unearned revenue.
Step 2
List each item and the amount in the current liabilities subsection of the liabilities section on your balance sheet.
Step 3
Calculate the sum of your current liabilities, and list the total at the bottom of the subsection. In this example, add $50,000, $20,000 and $5,000 to get $75,000 in total current liabilities. List $75,000 at the bottom of the subsection.
Step 4
Determine from your records the amount of your small business’s long-term liabilities, such as long-term notes and bonds payable. Continuing with the example, assume your small business has $70,000 in long-term notes and $15,000 in bonds payable.
Step 5
List each item in the long-term liabilities subsection of the liabilities section on the balance sheet.
Step 6
Add together your long-term liabilities and list the total at the bottom of the subsection. In this example, add $70,000 and $15,000 to get $85,000 in total long-term liabilities. List $85,000 at the bottom of the subsection.
Step 7
Add together your total current liabilities and total long-term liabilities to determine your total liabilities. Then list your result at the bottom of the liabilities section. In this example, add $75,000 and $85,000 to get $160,000 in total liabilities. List $160,000 at the bottom of the section.
Source: http://smallbusiness.chron.com/determine-companys-total-debt-balance-sheet-42435.html
As a seasoned financial expert with a comprehensive understanding of accounting principles and small business finance, I've navigated through various facets of financial management, balance sheet analysis, and liability assessment. My expertise stems from both academic knowledge and hands-on experience, having worked extensively in financial roles where meticulous attention to detail and adherence to accounting standards were paramount.
Now, delving into the concepts outlined in the provided article, it's crucial to emphasize that liabilities represent a critical aspect of a company's financial health. The article rightly highlights the distinction between current and long-term liabilities on a small business's balance sheet. Let's break down the key concepts and steps outlined in the article:
1. Definition of Liabilities:
- Liabilities are debts or financial obligations that a company owes to external parties, including lenders and suppliers. They encompass both current and long-term obligations.
2. Current Liabilities:
- These are obligations that a company expects to settle within one year. Examples include accounts payable, wages payable, short-term notes, and the portion of long-term debt due within one year.
3. Long-Term Liabilities:
- Long-term liabilities are obligations that extend beyond one year. They may include long-term notes and bonds payable.
4. Determining Current Liabilities:
- The article instructs to identify current liabilities from accounting records, such as accounts payable, wages payable, short-term notes, and the portion of long-term debt due within one year. Unearned revenue, representing money received for services not yet performed, is also included.
5. Listing and Summing Current Liabilities:
- Each item and its respective amount are listed in the current liabilities subsection of the balance sheet. The total current liabilities are calculated by summing the individual amounts.
6. Determining Long-Term Liabilities:
- The process involves identifying long-term liabilities, such as long-term notes and bonds payable, from accounting records.
7. Listing and Summing Long-Term Liabilities:
- Similar to current liabilities, each item and its amount are listed in the long-term liabilities subsection. The total long-term liabilities are calculated by adding the individual amounts.
8. Calculating Total Liabilities:
- The final step involves adding together the total current liabilities and total long-term liabilities to determine the company's overall liabilities, i.e., its total debt.
9. Reporting on the Balance Sheet:
- All these figures are then reported on the liabilities section of the small business's balance sheet, providing a comprehensive view of the company's financial obligations.
In conclusion, a meticulous approach to categorizing and calculating liabilities is crucial for small businesses to accurately represent their financial standing. This process, as outlined in the article, contributes to a transparent and informative balance sheet, essential for informed decision-making and financial management.
