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How to Calculate Total Liabilities.
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How to Calculate Total Liabilities.

Rosemary Njeri

What are Liabilities?

Ahead of discussing how to calculate total liabilities, lets begin by defining liabilities. Total liabilities are the aggregate debt and financial obligations owed by a business to individuals and organizations at any specific period of time.These include day-to-day obligations to business partners and employees as well as debt taken on to finance the organization and they are reported on a company’s balance sheet.

They are two main types of liabilities:

  • Current liabilities and
  • Non-current liabilities.

Current Liabilities.

Current liabilities also known as short-term liabilities, are liabilities that are due within one year or less. Because payment is due within a year, investors and analysts are keen to ascertain that a company has enough cash on its books to cover its short-term liabilities.Examples of current liabilities are:

  • Wages and salaries
  • Sales taxes
  • Accounts payable
  • Short-term notes payable
  • Accrued expenses
  • Dividends payable etc.

Non Current Liabilities.

Long-term liabilities, or non current liabilities, are debts and other non-debt financial obligations with a maturity beyond one year. Less liquidity is required to pay for long-term liabilities as these obligations are due over a longer time frame. Examples of long-term liabilities might include:

  • Notes payable
  • Mortgage payable
  • Capital lease
  • Deferred tax liabilities
  • Provisions

Other Liability Types.

Other liabilities are any unusual debt obligations a company may have. These are typically minor, like sales taxes or inter company borrowings. Still, accountants and investors may investigate these to ensure that a company is financially healthy.

Formula to Calculate Total Liabilities.

Calculate Total Liabilities.

Total assets refers to the total amount of assets owned by a person or entity that has an economic value.

Shareholders’ equity is the remaining amount of assets after all liabilities have been paid.

Example:

Calculate the total liabilities of a company whose total assets’ value is $ 2 Million and its shareholders’ equity value is $ 1.2 Million.

Calculate Total Liabilities.

Therefore, the total liability of the company is $ 800,000.

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