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7 minute read Published on Feb 12, 2023 by BrokerLink Communications
Every business has liabilities at some point, but did you know that they are several different types of liabilities? While accounting software can help you keep track of your liabilities, it is still important for businesses to understand what liabilities are and the different types of liabilities they may find on their balance sheet. Keep reading to learn all about business liabilities.
Liability refers to something owed or borrowed. It is being responsible for something else, such as someone else's money or services owed to someone else. Most commonly, they are a debt that a business plans to pay back under the expectation that their future income will be more than enough to cover what they owe. Just like with assets, having liabilities comes with the territory of running a business. But even though having liabilities means a business likely owes money, it is not necessarily a bad thing. In fact, they usually help business operations grow.
Basically, a business liability is something a business owes another company usually money or a legal obligation of some kind. There are current liabilities and non-current liabilities, and there are also what's known as contingent liabilities.
The reason liabilities are an essential part of a business is because they are often used to help finance operations and expansions. Common liabilities for businesses include accounts payable, income taxes payable, interest payable, bonds payable, accrued expenses, and more.
There are two categories of business liabilities: current (short-term liabilities) and non-current (long-term liabilities).
Also known as short-term liabilities, these are any debts payable within one year. Some examples of current liabilities include the following:
Also known as long-term liabilities, these are any debts that are payable over a period longer than one year. Some common types of long-term liabilities include the following:
Contingent liabilities are less commonly seen on the balance sheet than short-term liabilities or long-term liabilities. However, they are still the third most commonly seen liability. This is because contingent liabilities are liabilities that may or may not occur depending on the outcome of a future event.
Also referred to as potential liabilities, they include potential lawsuits or product warranties. Contingent liabilities are only recorded on the company's balance sheet when the probability is at least 50% likely to occur. For example, if a lawsuit that a company was facing was dropped or the company won, the company would not need to record it on its balance sheet.
A business liability is something a business borrows from or owes to someone else. Sometimes liabilities are wrong, like a potential lawsuit, while other times they are good, like a loan that helps to expand the business.
Both current liabilities and non-current liabilities convey the amount of money owed to other businesses. However, current liabilities reflect money that is due within the year, and long-term liabilities represent how much money is owed that is not due for a longer period of time. Current liabilities are generally paid for with current assets, while long-term liabilities are more likely loan repayments or deferral payments.
If you are a small business owner, chances are good that the only liability on your balance sheet is accounts payable and possibly rent, utilities and a small business loan. In that case, for your own reporting purposes, you can record these however you choose. However, if you need to share your financial statements with other companies, such as investors, lenders and banks, you will need to make sure that you separate your short-term and long-term liabilities to make it easier to see which ones are due sooner rather than later.
The easiest way to keep track of your business liabilities is by using accounting software. Accounting software helps businesses manage their day-to-day financials and keep track of their assets, liabilities, revenues and expenses. Businesses can sync their credit cards and bank accounts with the software to streamline the data entry and organization process.
Business insurance, also known as commercial insurance, protects you and your business and pays for any damage occurring due to accidents, disasters, and injuries caused due to one’s negligence — all of which would require additional out-of-pocket expenses for repairs, replacement, and compensation. Business liability insurance eliminates the financial burden of these additional expenses, providing you with the necessary cover to address these emergencies.
Our insurance brokers are dedicated to providing your growing enterprise with the right financial protection for property damage, loss of income and liability claims. That is why we work with leading insurance providers in Canada who are just as dedicated to tailoring industry-specific coverage at very competitive rates.
While commercial insurance will vary based on various factors, you can generally expect the following to be covered in your business insurance policy:
Our insurance brokers are proud to support the needs and Canadian businesses. That is why we partner with leading insurance companies to obtain multiple quotes for your business. In other words, “we do the shopping for you.”
Every business is unique. This means there is no one-size-fits-all solution for finding the right business insurance coverage. There are several factors to consider and keep in mind. You are the expert on your business; we are the experts when it comes to insuring your business. We know the right questions to ask, and we will recommend the right coverage for you
At BrokerLink, our brokers have extensive expertise in business insurance. We can help you get the coverage you need. You can reach out to us by completing an online quote in just a few minutes or calling us. You can also visit one of our 200+ community branches across Canada.
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