Ministry of education tashkent financial institute

Classification of Liabilities

These are the three main classifications of liabilities:

1. 
   Current liabilities (short-term liabilities) are liabilities that are due and payable within one year.
   
2. 
   Non-current liabilities (long-term liabilities) are liabilities that are due after a year or more.
   
3. 
   Contingent liabilities are liabilities that may or may not arise, depending on a certain event.
   

 

Types of Liabilities: Current Liabilities

Current liabilities are a company’s financial obligations for short-term that are expected within one year or within a normal operating cycle. An operating cycle also referred to as the cash conversion cycle, is the time it takes a company to purchase inventory and convert it to cash from sales. The liabilities themselves are debts to be settled, therefore, that current liabilities should not exist in the company for a long period. This is in constant motion within the company, whether in its financial activities or commitments. The current liabilities are also known as the origin of the business fund, which certifies where the money obtained comes from.

In the current liabilities, we can find the following groups of components:

1. 
   Short-term debts: that are obtained from third parties, either through loans or other debt. These must be canceled within one year.
   
2. 
   Debts with short-term companies: when financial commitments are obtained with associated companies, these must also be paid in a short period of time.
   
3. 
   Commercial creditors: are the commitments that the company acquires to the people who provide the company with either raw material or other services. These are acquired in order for the company to function properly.
   
4. 
   Provisions in the short term: those payments of contracts, taxes, transactions and other actions that must be canceled in a period less than one year.
   

This liability presents a series of characteristics that define it:

• 
  This liability expires in a short period of time, less than one year.
  
• 
  Some include interest payments, especially when it comes to bank loans.
  
• 
  These current liabilities are debts that are obtained with third parties, which must be repaid in the established time.
  

Two classifications of current liabilities can be found, which are:

1# Expressive Liabilities

All negotiations and financing with the different partner banks and the financial institutions that work with it are part of this liability. All these commitments must be canceled quickly, as well as the interest resulting from the financing.

To understand it in a simpler way, the express liability is the commitments that result from all those operations that were carried out outside the scope of production of the company that is not of a productive life. Insurance policies, short-term loans, are the most common express liabilities. It is important to know that all financing with interests involved falls into this category.

2# Spontaneous liabilities

They are all those expenses that come hand in hand with the life and production of the company, these generated automatically over time. All the activities that result from the life of the company, such as hiring employees, paying taxes, maintaining equipment and buying from suppliers, fall into this classification.