Skip to main content
Pearson+ LogoPearson+ Logo
Start typing, then use the up and down arrows to select an option from the list.

Financial Accounting

Learn the toughest concepts covered in your Financial Accounting class with step-by-step video tutorials and practice problems.

9. Current Liabilities

Types of Liabilities


Types of Liabilities

Play a video:
Was this helpful?
So now let's discuss some of the most common current liabilities and long term liabilities that you're gonna run into in this class. Now a lot of these you've seen before. We've talked about a lot of these things but I'd like to have them all in one place. So you can kind of refer to this when you want to think about your liabilities. Alright so let's go ahead and start here with our current liabilities. And remember when we talk about current current, that's when they're payable within one year. Right we're gonna have to pay these out within one year liabilities. This is stuff we oh well these are gonna come due within the year. Okay. So remember accounts payable. This is the one we talked about all the time accounts payable. Well this one amounts that were owed to suppliers. Right? So this is kind of our day to day. This is where like a general liabilities account we got an invoice from a supplier maybe for some inventory that we were that we purchased. Or it could even be just a general invoice that we got for lawn maintenance. Right? They came and mowed our lawn and they sent us an invoice. Well this is an account payable just general day to day stuff. Right? Day to day stuff. And this is when we receive an invoice but we haven't paid it yet. Right? So we take the expense now but we haven't paid for it. So we have this account payable right? We can either pay now with cash or we can pay later with an accounts payable now. Similar to accounts payable, but a little different. We have these accrued expenses. Now. These accrued expenses, their liabilities that arise from our adjusting entries. Okay. So when we have accrued expenses, we're talking about a little more specific details. So remember we did adjusting entries. We talked about accrued expenses and we focused on salaries payable right? We had salaries payable where we had an employee that worked for us for a few days but but we hadn't paid them yet and it was time to release our financial statements. So we have to take into account those days that they work for us as an expense. But since we haven't paid them yet, what we're going to adjust our books and add this payable? Okay, so that would be an accrued expense um and we'll end up paying it in the next period. Right? So notice with accounts payable, it's a little more of a general account where we kind of just receive an invoice. Okay. We have an account payable with these accrued expenses. They're a little more details. Right? We've got our salaries and wages payable interest payable taxes payable. These all come from these adjusting entries. Cool. Alright. So um the next one here, we've talked about as well. Remember unearned revenues. That might sound like a revenue account because it says revenue right there but unearned. That's the key word when we're talking about unearned revenues. Well that's when we have a liability in this case because the customer paid us in advance. Right? So think about this. The customer paid us in advance, but we haven't done anything for them. Right? Done anything for them at this point yet. So when they gave us that money, well, if we don't end up delivering the good or doing the service for them, we're gonna have to give them that money back. Right? So at this point when they give us money in advance, we owe them something and that owing is a liability. So that's the unearned revenues. And we talked about those in greater detail when we did adjusting entries. Right? So if you wanted to go back there, you could get the details about unearned revenues. Again from that video. So remember unearned revenues, you might see a couple of different names, deferred revenues, customer deposits. Right. They all mean the same thing, but they can have different names and it's okay. You just have to be aware that they can have different names for the same account. Okay. The next one here is payroll liabilities. So we talked about salary, expense and the salaries payable above. But there's other liabilities that arise from payroll as well. There's taxes that we have to pay right in the US, we pay like Social Security taxes. Well, the employee isn't the only one that pays those taxes, the employer is also liable for some taxes related to payroll and there's other expenses that come up from payroll. Maybe you provide health insurance for your employees. Right. So all of these things, we go into detail in another video. If you if your if your book goes into those details and your professor focuses on that, we're gonna have a video where we dive into payroll liabilities. But it's just good to know that this is one of the most common current liabilities that we deal with. Right? So there's several different types that fall into these payroll liabilities. And the main one there is those employment taxes, like the Social Security taxes. Um And yeah, things like that. So the last one here that's a common current liability is the current maturity of long term debt. This one's pretty interesting. Right? We've got long term debt. Right? So long term meaning we're gonna have to pay it in the long term, so not in the current year but we have current maturity ease of that long term debt. Okay, so what does that mean? Think about a mortgage. Maybe there's a mortgage that's like a 15 year mortgage or a 30 year mortgage on a house. Right well you make monthly payments on that mortgage. Right, So you you have this long term debt, right? It's a 30 year loan. But but there are payments that you're making in the current year. So those current year payments. Well those are going to be current liabilities and the rest of those payments are long term liabilities. Okay so the current portion of the long term debt. Well those are current liabilities and those are the upcoming principal payments that you're going to be making on that long term note payable that you might have. Okay. So we also dive into uh long current portion of long term debt in more detail in a later video as well. So we'll have more information there. So that that's pretty much it for the current liabilities. Let's go ahead and discuss these two long term liabilities because these are the most common ones. You're gonna see and remember long term liabilities. These are payable in more than one year. Right? So there are long term liability, you don't have to pay them off in the short term, you have time to pay them off. So the two we always see is notes payable and bonds payable for the most part. They're very similar notes payable. Well this is a signed contract and you borrowed some money. This is usually from a bank, right? A bank is gonna loan you some sum of money. And why are they gonna loan you money because you're gonna pay back interest? Right so you're gonna take this loan from the bank and you're gonna pay them back with interest. Okay? And what we're going to see is that notes payable? They can be current liabilities or long term liabilities. Right? You can sign a note payable that you're going to pay it back in six months. Well that's a current liability, but most of the time, I would say 99% of the time when we're dealing with notes payable, their long term liabilities. Okay. It's gonna be a loan that you take for 10 years, 20 years, something like that. Okay. And we've talked about notes receivable in a previous video. Well, notes payable are the exact opposite, right? The bank has a note receivable when you take out a loan and you have a note payable, right? So if you loan someone out money on a note, well you have a note receivable and they have a note payable. So there's always one and the other happening at the same time. Cool. So the exact opposite of each other. And what you're gonna notice with bonds payable, they're pretty similar to your also raising money, you're also uh taking on debt in a similar way, but it's not just from say one bank where you signed a loan with a bank here, you're gonna raise debt from multiple lenders. Okay? So usually what you do is maybe you're trying to raise a million dollars worth of debt. Well you'll sell a bunch of $1000 bonds, you can sell $1,000,000 bonds to different people instead of going to one bank and raising a million dollars. Now, you can get $1000 here, $1000 there, right? And it's similar that you're gonna be paying interest, right? So you're still going to be paying interest here, and that's the reason that people will want to buy those bonds from you. Okay. So just like I said, right, you're raising large sums of money and it might be difficult to borrow it from just one source. Okay. That's why you might do bonds payable instead of just going to a bank. The bank not might not be comfortable lending you a million dollars, but you might be able to find 1000 people willing to lend you $1000. Okay, So that's about it. For the most common liabilities you're gonna run into. We're gonna dive into some more detail into a lot of these. All right, So let's go ahead and do that in the next video.