Liabilities
December 10, 2008 – 6:21 amLiabilities are the things that you owe. Liabilities require the future sacrifice of assets. In most of the transactions in our examples, we have been assuming that we paid cash. In business, however, credit is often used rather than paying with cash or a check. If we purchase something on credit, the credit will be to Accounts payable rather than to Cash.
Like assets, liabilities are classified as current or noncurrent (also called long-term). Current liabilities are those liabilities that are expected to be satisfied within the next twelve months (the next year). Noncurrent liabilities are those liabilities that are not expected to be satisfied within the next twelve months.
In some cases, a portion of a liability will be paid within the next year and another portion will not be. A good example of this is a mortgage. A mortgage is a loan secured by real estate that usually has a long payment term. Payments are made every month, so there is a portion of the mortgage that will be paid within the next year. The balance of the mortgage therefore has to be split into two pieces: the piece that will be paid during the next year and the remainder that will be paid after the next year (the current piece and the long-term piece). The piece that will be paid next year is shown with the current liabilities and is called Current portion of long-term debt or something similar.
Taken From : Accounting Demystified