What are liabilities for a company?
In simple terms, business liabilities are the debts that an organization must repay at one point or another. There are many different aspects of liabilities that you must keep in mind when running a company.
The purpose of this post is to answer some of the most important questions about liabilities so that you can rely on the right accounting service in Malaysia to deal with various types of liabilities in your company.
Let’s start with some basics.
What is a Liability?
Classification of Liabilities
The classification of the liabilities becomes easy on the basis of their due dates. It is important for companies and accounting firms in Malaysia to do proper classification so that the finances of a company can be managed successfully.
What are the Different Types of Liabilities?
- Current Liability
- Non-Current Liability
- Contingent Liability
1. Current / Short-Term Liabilities
Current liabilities are also known as short-term liabilities because these are the debts that are payable within one year. Therefore, it is extremely important for companies to keep a close eye on current liabilities to make sure they can meet the obligations from the current assets.
Payable bills, income taxes, short-term loans, and accrued expenses are many examples of current liabilities. Such liabilities also act as one of the key indicators in measuring short-term liquidity.
If you outsource your accounting functions to an accounting firm in Malaysia, you will have more time and energy to focus on other aspects of the business, as professional accountants will be dealing with the financial management of your business.
2. Non-Current / Long-Term Liabilities
As the name suggests, non-current liabilities are the liabilities that are due after a year. These long-term liabilities play a critical role in the long-term success of companies by providing immediate funds to invest in various projects and assets. Deferred tax liabilities, payable bonds, and capital leases are common examples of long-term liabilities.
However, if a company is not able to repay its long-term liabilities, it can face a severe solvency crisis. It is always a good idea to hire professional accounting services in Malaysia so that an audit or accounting firm can help you out in the best ways possible.
3. Contingent Liabilities
Contingent liabilities are the potential liabilities that can occur due to a future event. For instance, if a company faces a lawsuit, then it can incur liability if the lawsuit is successful. However, an unsuccessful lawsuit will not lead to liability.
According to international accounting standards, a contingent liability is only recorded when there is more than a 50% chance of a liability to occur. It is also possible to estimate the amount of resulting liability.
4. Liabilities on a Balance Sheet
Liabilities form a major part of a company’s balance sheet. A balance sheet has details about the assets, equity, and liabilities of a company. An asset is anything that holds financial value for the company. Assets are recorded on the left of a balance sheet.
On the other hand, liabilities and equity are recorded on the right side of the balance sheet. Liabilities are further divided into three categories discussed above. If you hire accounting services, you will not have to worry about dealing with such procedures yourself because a professional accountant will do all of the work for you.
5. Analysis of Business Liabilities
Analyzing the liabilities of your company is important to make sure you do not have too much liability. It can be achieved by comparing the amount of debt you have with other liquidity and solvency measures.
Methods like the current ratio, debt-to-equity ratio, and debt-to-asset ratio are used to analyze the liabilities in a company. However, there is no one method that fits all types of organizations. A correct method can be applied depending on the overall scale and type of the business.
In a Nutshell
The bottom line is that every organization has to be familiar with the various aspects of liabilities to make the best decisions for their companies. Outsourcing accounting services in Malaysia is a good way for companies to get help from professional accountants in dealing with various types of liabilities.
For more information, feel free to get in touch with us.
