Audience: 

This is the second of a series of training posts and videos presenting accounting in simple-to-understand English for Small Businesses and Small Government Contractors.

The goal of RMOHC is to provide client empowerment and financial peace of mind through complete, compliant, and accurate accounting.

This second post deals with Liabilities, the second of 5 account types..

The 5 account types are: 

Assets
Liabilities
Equity
Income
Expenses

What are Liabilities?

They are things you owe or have money you have borrowed, a.k.a debt.  These “things” also benefit the business. 

In “Accounting Speak”:
-You incur a liability when you take on a debt. 
-Liabilities often use the term payable because eventually, you have to pay it off(!)

Examples of Liabilities you will recognize are:

Current Liabilities

Current Liabilities (a.k.a. Short-Term Liabilities) – debts that you will pay off, or are due in the next 12 months
-Loans – money borrowed from a bank, an individual, or another institution (Loans Payable)

-Accounts Payable – money you owe a business or a person for items or services you received for ongoing expenses on credit (you did not pay for it yet). 

-Deferred Revenue – money you received for 1) products or 2) services to perform:
    -you have not yet provided yet
    -and will be provided or performed in the future
    -Can be short or long term

-Accrued Expenses – debt that builds over time to be paid later (Rent, Loan Interest, Legal Retainer)

Long-Term Liabilities

Long-Term Liabilities are debts that you will pay off, or are due in more than 12 months
-Mortgages – a special loan for purchasing real estate

–Long-Term Loans – money borrowed from a bank, an individual that will take more than 12 months to pay

-EIDL Payable – Small Business Administration (SBA) long-term loans (EIDL = Economic Injury Disaster Loan), loans provided in response to the impact of COVID-19 on small businesses

Remember:

Liabilities are debts you owe for money borrowed, or serviced received. 

They include:
                     Current Liabilities:

                                        -Loans

                                        -Accounts Payable

                                        -Deferred Revenue

                                        -Accrued Expenses

                     Long-Term Liabilities:

                                        -Mortgages

                                        -Long-Term Loan

Thank you for reading this post, watch for video series that will be coming out very soon. 

If this was helpful, please share this with your friends and colleagues. 

Here’s to your peace of mind!!
  -Michael

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