Liabilities Side Of The Balance Sheet(Part1of3)

As explained earlier a BALANCE SHEET is:-

A snapshot of the financial position of an entity.This snapshot is at a point of time.

Say, as at 7 May 2006, you look at Company A’s balance sheet, it reflects the financial position as at that day. After that day, the financial position company A  can change to a better or worse situation.

In the Balance Sheet, we have the three (3) key components:

Assets= LIABILITIES + Owner’s Equity

( Refer to my illustration for the Dual Aspect Concept)

LET’S DEFINE WHAT ARE THE CHARACTERISTIC OF LIABILITIES?

• Future transfer or use of assets the entity has no discretion to avoid it

• Transaction already happened

WHAT ARE THE MAJOR COMPONENTS OF THE TOTAL LIABILITIES?

Comprises:

1. Current Liabilities and

2. Long Term Liabilities