What the hell are liabilities?
Everyone knows that liability means a debt on your head and
the debt on our business is called liabilities
But friends, let's go deep
Liability is a legal obligation of an individual or a
business entity towards creditors arising out of some
transactions
You have done some transactions or some activities due to
which you are in debt on your business
For example, buying a goods loan, a building loan, or
taking a loan from a bank
So, you are in debt
So, liabilities means having such activities and
transactions in the business due to which liabilities are
developed
There are two types of liabilities, current liability and
long term liability
Current liability is those liabilities which are normally
due and payable within one year
You have to pay it within one year
You bought a goods loan from a creditor and you said I will
pay it in three months
So, that liability will remain for three months and will be
called current liability for less than one year
You took a loan from a bank and you have to pay the loan
after three years
So, this is not current liability because you don't have to
pay this liability in 12 months or less
You have to pay it after 12 months
We have more time for this
So, this is called long term liabilities or its other name
is non-current liabilities
Long term liabilities are those liabilities which are not
due immediately but become due after a year or more
If you don't have to pay it within a year then you have to
pay it within a year or more
And the next important point is contingent liabilities
Contingent liabilities are liabilities which are payable on
occurrence of some event or contingency
Sir, we don't understand this
What does it mean?
Contingent liabilities are those liabilities which you have
to pay or you don't have to pay
This thing is hidden in the future
It depends on some event in the future whether we have to
pay the money or not
I will give an example
You supplied some goods and the goods got spoilt
You sent the right goods but the goods got spoilt
But the other party thinks that you have sent the wrong
goods and that refund is more
They put a claim on you by going to the court
Now, a legal case is going on and you are going to the
court and you are trying to prove that you have sent the
right goods but the goods got spoilt by going to the wrong
person
This is a war
This is called legal suit
S-U-I-T means legal suit
A case is going on in the firm and the decision of the case
will come for example, after 6 months
So, after 6 months you will know that if you lose the case
then you have to pay the money and if you don't lose the
case then you don't have to pay
So, this is a liability which is not confirmed
Liability means the loan which we have to pay
Loan means the money which we have to pay
Contingent liability means whether we have to pay or not
In the future, when the decision of the case will come then
if you lose then you have to pay the money otherwise you
don't have to pay
Contingent liabilities are those liabilities which depend
that these will be occurred or not occurred upon happening
or non-happening of an uncertain future event
In the future, what will be the result of that event from
this we will know whether we have to pay contingent
liability or not
What is the meaning of liabilities?
It refers to financial obligation or debt which a business
owes to the other
It is liable to pay other such as loan from bank other
person credit of a goods supply
I have given some examples of liabilities like buying goods
from bank, etc
Internal and external liabilities are there
Internal liability is the liability towards the owner of
the business and external liability is the liability
towards the outsider other than the owner
As I told you, business and the owner are different
Both are different
Business and the owner
So, the capital which is invested by the owner is also a
liability for the business
The business will return that money to the owner
It is also a liability
It is also a liability for the business
So, it is called internal liability i.e.
the money which is to be returned to the owner by the
business on the business, the capital of the owner which is
the liability we call it as internal liability and if the
money of a creator, bank or an outsider is the debt on the
business then we call it as external liability
We call it as external liability
The heading below is liabilities Non-Current Liability and
Current Liability
Non-Current is the same as I told you
The second name of long term liability is
Non-Current Liability which you have to pay after one year
Non-Current Liability and Long-Term Liability
These are loans which are payable after a period of more
than a year from the end of accounting period
Example, loan, debenture, etc
Current and Short-Term Liability
These are the obligations which are payable within a period
of 12 months from the end of accounting period
Example includes bill payable, short-term loans, etc
The same thing is written in our notes
This is what I have told you
This is the meaning of Liabilities
Contingent Liability is that you have to keep in mind why
do you have to keep in mind? because it is an example
The legal suit example you have to remember that is the
best way to remember contingent liability
My dear friends
Current or Short-term liability is the same
Long-term liability or
Non-Current liability is the same
Thank you.