What Are The Types of Liabilities In Accounting

Liabilities are the obligations or debts due payable by the business to outsiders i.e., Creditors or Accounts Payable or Suppliers, Banks, Financial Institutions, etc. Examples of Liabilities are Accounts Payable, Accrued Liabilities or Outstanding Expenses, Income / Revenue Received in Advance, Bank Loans, etc.

There are three types of Liabilities:

1. Current Liabilities

Current Liabilities are used by the business within one year or less. Examples are Accounts Payable / Creditors, Outstanding Expenses, Advance Income / Revenue Received or Prepaid Income, etc.

2. Long-Term Liabilities / Non Current Liabilities

Long-Term Liabilities are used by the business for more than one year Examples are Bank Loans, Deferred Liabilities.

3. Contingent Liabilities

These are depended upon the happening of uncertain future event that may or may not occur. An entity shall recognize that contingent liability in Notes to the Accounts if it is probably estimated . However, if there is very low probability that it will not occur, then it should not be accounted for in its notes to the accounts. Example is Legal Charges Rs. 300000 demanded by a company A from company B in the court. If the company B lost the case, then it is payable to company A, so company B records this liability as a contingent liability of Rs. 300000 in the notes to the accounts as it is probably estimated.