Know The Components in The Liabilities Side Of A Balance Sheet(Part1of3)

WHAT IS A BALANCE SHEET? (reiterated from earlier article)

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 can change to a better or worse situation.

Also, remember that in the Balance Sheet, we have the three (3) key components:

Assets= LIABILITIES + Owners Equity

( Refer to my illustration for the Dual Aspect Concept)

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