QuickBooks Liabilities (Cash)

What Are Liabilities

Liabilities represent the financial obligations or debts of a business entity or organization. These obligations come from past transactions or events, and they require the business to make future payments, provide goods or services, or settle outstanding debts.

Liabilities can be classified into two main categories based on their timing of settlement – current liabilities and non-current liabilities.

• Current liabilities are short-term obligations that are expected to be settled within the next operating cycle of the business, typically within one year. Current liabilities include items such as accounts payable (money owed to suppliers for goods and services), short-term loans, accrued expenses (e.g., salaries payable, interest payable), and any other short-term debt.
• Non-current liabilities are long-term obligations that are not due for settlement within the current operating cycle, usually beyond one year. Non-current liabilities may consist of long-term loans, bonds, deferred tax liabilities, and lease obligations that extend over an extended period.

How to Calculate Liabilities

Depending on which type of liabilities you want to calculate, the formula you use will vary.

For current liabilities, you can use the following formula:

Current Liabilities = Accounts Payable + Short-term Loans + Accrued Expenses + Other Short-term Debts

For non-current liabilities, we use this formula:

Non-current Liabilities = Long-term Loans + Bonds Payable + Deferred Tax Liabilities + Other Long-term Debts

And lastly, here’s the formula we use to calculate total liabilities:

Total Liabilities = Current Liabilities + Non-current Liabilities

Let’s say a small business wants to calculate its liabilities based on the information provided below:

Current Liabilities:

• Accounts Payable: $10,000
• Short-term Loans: $5,000
• Accrued Salaries: $3,000

Non-current Liabilities:

• Long-term Loan: $20,000
• Bonds Payable: $15,000
• Deferred Tax Liabilities: $8,000

Let’s put the formulas to use.

First, we calculate current liabilities:

Current Liabilities = $10,000 + $5,000 + $3,000 = $18,000

Then, we move on to non-current liabilities:

Non-current Liabilities = $20,000 + $15,000 + $8,000 = $43,000

Lastly, total liabilities:

Total Liabilities = Total Current Liabilities + Total Non-current Liabilities Total Liabilities = $18,000 + $43,000 = $61,000

As we can see in this example, the company has total liabilities of $61,000.

How to Better Track Liabilities

To maintain financial health and be able to make informed debt management decisions, businesses need to track and analyze their liabilities effectively.

There are different approaches to this depending on the specific business model and industry, but we compiled a few universal strategies that any company might find useful:

• Create a liability schedule: You and your financial team should develop a liability schedule that outlines each liability’s details, including the creditor’s name, amount owed, interest rates, payment terms, and maturity dates. This schedule can serve as a central reference for tracking and managing liabilities effectively and it’s something that each team member can have access to and update in real-time.
• Implement liability hedging strategies: Consider using financial instruments like interest rate swaps or currency hedges to mitigate the risk associated with fluctuating interest rates. This strategy not only helps stabilize cash flows, but it also allows for more predictable liability management.
• Regularly reconcile accounts payable to ensure accurate records: Reconciling accounts payable is another crucial aspect of efficient liability tracking. It involves comparing the records of outstanding invoices and payables in the accounting system with the statements the business receives from creditors and suppliers. Each business should perform regular reconciliations to ensure the accuracy of its accounts payable records. For effective account payable reconciliations, it’s best to establish a systematic process, allocate enough resources for the task, and use reliable accounting software.
• Create a contingency plan for unexpected liabilities: Unforeseen liabilities are always a challenge to a company’s financial stability. This is why it’s key to build a well-thought-out contingency plan that can help your businesses navigate through unexpected financial obligations. The contingency plan should outline potential risks, response strategies, and clear communication protocols within the organization. It’s a living document that should be regularly reviewed and updated as the business landscape evolves.

More resources to help you improve:

• How to Write a Great Financial Report? Tips and Best Practices
• 5 Real-World Finance Report Examples and Templates to Inspire Your Own
• 9 Vital Small Business Financial Reports for Your Organization
• 4 Most Important Accounting Reports for Your Small Business