What Are Liabilities on Financial Statements?

A balance sheet is an important part of a business plan.
A balance sheet is an important part of a business plan. (Image: Medioimages/Photodisc/Photodisc/Getty Images)

Liabilities on financial statements represent sums that you owe or financial situations that detract from your overall net worth. Liabilities on financial statements are most likely to occur on balance sheets, which calculate your net worth by showing all of your assets, such as property and money in the bank, as well as liabilities such as credit card debt. Subtracting your total liabilities from your total assets provides a figure for your total net worth.

Loan Debt

If your business has taken out loans to operate, the amounts that you still must repay should appear as liabilities on your balance sheet. Business loan debt includes unpaid balances due to banks or the Small Business Administration, as well as loans to private individuals such as friends or family or investors. An unpaid balance on a small-business line of credit also qualifies as a liability on a financial statement because it detracts from your total net worth.

Accounts Payable

If your business carries unpaid balances owed to suppliers or contractors, these amounts also qualify as liabilities on your company financial statement. Although these amounts may not be formalized debt such as sums owed to banks and credit card companies, they do represent amounts that remain to be paid, and therefore qualify as liabilities. If you have not yet used the items you purchased for which payment is due, their worth will be listed on the assets section of the balance sheet, counteracting this liability when you calculate your net worth.

Credit Card Debt

Balances owed on business credit cards qualify as liabilities on your company balance sheet. If your business is a sole proprietorship and you charge business expenses on your personal credit card, these sums are liabilities on your balance sheet as well. Liabilities on business credit card debt also include any unpaid finance charges and late fees, because these sums also represent amounts that you owe, and they therefore must be subtracted from your company's net worth.

Property Debt

If your business has purchased commercial property but has not paid for it in full, the unpaid portion will appear on the liabilities side of your financial statement, while the total worth of the property as is if it were paid in full appears on the assets side of the balance sheet. By subtracting liabilities from assets, your balance sheet will include only the total amount of equity you have accrued as part of your net worth.

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