If the word liability scares you, it’s a good idea to go over some examples of liabilities. Knowing and understanding what a liability is and what liabilities you have can be empowering. Plus, it can help you in the unfortunate event of a lawsuit.
What Are Liabilities?
To understand examples of liabilities, you need to know what a liability is. In its simplest definition, a liability is something you owe. If you’re a business owner, liability could be something in your personal life or related to your business. It’s important to understand that those liabilities are separate.
Liabilities can be monetary and often are, but other forms of liabilities include loans, accounts payable, mortgages, deferred revenues, bonds, warranties, and accrued expenses. There are current and long-term liabilities.
What Is a Current Liability?
A current liability is different from a long-term liability and needs to be treated differently.
A current liability is due within 12 months. For example, car payments, mortgage loans, credit card payments, and student loan repayments that are due within one year are considered current liabilities. You have nothing to worry about if you’re paying for these liabilities when you owe them. They’re a normal part of life.
Other examples of liabilities that are current include the following:
- Wages payable.
- Interest payable.
- Dividends payable.
- Unearned revenues.
- Liabilities of discontinued operations.
Wages Payable
If you own a business, this refers to the money you owe your employees. This number will constantly change depending on how many employees you have and their wages. Promoting an employee or hiring independent contractors will increase this liability.
While this will be a liability for you, it will be an asset for your employee. An asset is something that adds value to you. Money coming your way definitely adds value!
Interest Payable
Do you use a credit card to pay for purchases? This could be for your business or personal reasons. If you don’t pay off the balance in full every month, you’ll owe interest on your purchases. That interest is a liability to you and your company and is known as interest payable.
Dividends Payable
If you’ve issued stock to investors and paid a dividend, this applies to you. That dividend is what you owe to the shareholders. You’ll owe this liability around four times a year if this applies to you.
Unearned Revenues
Do you have clients who pay you in advance for goods? Say you own a company where you sell smartphone cases. Customers pay for their cases when they order them. Until you’ve shipped the smartphone case to the customer, their purchase is a liability referred to as unearned revenue.
Liabilities of Discontinued Operations
If you closed down your company, or if you’re in the process of doing so, you likely have liabilities associated with the discontinued operations. Examples include operations, divisions, and entities. Your product lines, if you had them, can also be liabilities. It’s essential to keep a record of these liabilities until everything has been completely shut down.
Those are examples of current liabilities. Now, let’s look at what long-term liabilities are.
What Is A Long-Term Liability?
A long-term liability is different from a current liability. It’s more commonly known as a non-current liability. It’s something that you’ll owe in the future. You’ll want to prepare for it, but it’s not something you currently owe or need to think about right now.
Say you have student loans and owe a total of $30,000. You owe $150 per month, totaling $1,800 per year. You’ll be paying off your student loans for another 16 years at the rate you’re currently paying.
The following 12 months of payments are current liabilities. But the other $28,200 is a long-term or non-current liability. You’ll need to prepare to make those payments as they become due, but they’re not liabilities that you’re currently responsible for.
Other examples of liabilities that are non-current include these:
- Warranty liability.
- Contingent liability evaluation.
- Deferred credits.
- Post-employment benefits.
- Unamortized Investment Tax Credits.
Warranty Liability
There’s no guarantee that your customers will use their warranties, especially if your product is high quality. But sometimes, you can’t help malfunctions. That’s what warranties are for, so you’ll need to be prepared to honor warranties by setting aside the appropriate funds and tools.
Contingent Liability Evaluation
This type of non-current liability refers to a contingent liability on something happening. If nothing happens, that non-current liability never becomes current, so you might never need to worry about it. But because it could become current, it’s something you need to prepare for, just in case.
Deferred Credits
There are tons of examples for deferred credits, but in its simplest form, it refers to revenue that’s come in but hasn’t been officially recorded in its simplest form. Once the credit is no longer deferred, it becomes part of the company’s revenue stream.
Post-Employment Benefits
Post-employment benefits refer to retirement benefits and other things that you earn after you’ve retired. They’re a long-term liability for the company and an asset for the retiree. A pension is an example.
Unamortized Investment Tax Credits
There’s the historical cost of an asset vs. the depreciated amount. The part that remains amortized is a liability.
Flickinger • Boulton • Robson • Weeks
As you can see, there are tons of examples of liabilities. Problems only occur with liabilities when you can’t pay what you owe or when someone else owes you, and they’re not paying you. Liabilities and assets work well when everyone lives up to their end of the agreement.
Lawsuits often occur over liabilities. Flickinger • Boulton • Robson • Weeks is here for you if you find yourself in this position. We’ve been representing clients for over 25 years, and we’d be happy to help you.
We don’t charge upfront fees, and we offer free case evaluations. We can meet with you and see how we can help you before you commit to us representing you!
You can get started by contacting us or calling us at 801.500.4000. If you’re facing a liability lawsuit, don’t wait to reach out to us! The sooner we get involved, the sooner the whole process will be over. Contact Flickinger • Boulton • Robson • Weeks today!