Classification of Liabilities

The liabilities of a firm may be divided according to their nature:

Current Liabilities:

Current Liabilities are those debts at the balance sheet date that must be paid either immediately or within one year or operating cycle.

Long-Term Liabilities:

These are the liabilities which are not to be paid within one year of the balance sheet date or normal operating cycle if it is longer. Long-terms liabilities may be classified as secured loans or unsecured loans in the balance sheet.

Contingent Liabilities:

A contingent liability is one which arises on the happening of an unfavorable event. There is no actual legal obligating on the date of balance sheet. It is therefore potential obligation usually dependent on a future event beyond the control of the business enterprise.

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