Classification of liabilities

1. TEJAS V
Classification of Liabilities

2. Definition of liability
• According to IFRS “A liability is a present
obligation of the enterprise arising from
past events, the settlement of which is
expected to result in an outflow from the
enterprise of resources embodying
economic benefits.”

3. Classification of liabilities
• Current liabilities (short-term liabilities)
• Non-current liabilities (long-term liabilities)
• Contingent liabilities

4. Current liabilities
• Current liabilities, also known as short-term liabilities,
are debts or obligations that need to be paid within a
year.
• Current liabilities are used as a key component in
several short-term liquidity measures.
• Current liabilities are a company's short-term financial
obligations An operating cycle, also referred to as
the cash conversion cycle, is the time it takes a
company to purchase inventory and convert it to cash
from sales.
Examples of current liabilities:
• Accounts payable
• Interest payable
• Income taxes payable
• Bills payable
• Accrued expenses
• Short-term loans

5. Non-current Liabilities
• Non-current liabilities, also known as long-term
liabilities, are debts or obligations that are due in
over a year’s time. Long-term liabilities are an
important part of a company’s long-term financing.
Companies take on long-term debt to acquire
immediate capital to fund the purchase of capital
assets or invest in new capital projects.
List of non-current liabilities:
• Bonds payable
• Long-term notes payable
• Deferred tax liabilities
• Mortgage payable
• Capital leases

6. Contingent Liabilities
• Contingent Liabilities are
liabilities that may occur,
depending on the outcome of
a future event. Therefore,
contingent liabilities are
potential liabilities.
Examples of contingent
liabilities:
• Lawsuits
• Product warranties

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