notes payable

You invested in stocks and a dividend of $500. To reflect this transaction, credit your Investment account and debit your Cash account. Sub-accounts show you exactly where funds are coming in and out of. And, you can better track how much money you have in each individual account. By this point, you might be wondering about all the other accounts you’ve seen and heard of.

total liabilities

A Retained Earnings account is used to record the earnings of a corporation and to record when earnings are given back to the owners in the form of dividends. Accrued Interest – This includes all interest that has accrued since last paid.

What are small business liabilities and assets?

Liabilities refer to things that you owe or have borrowed; assets are things that you own or are owed. For another party if the actual party fails to pay the debt in time.

  • For example, if a company is facing a lawsuit, they face a liability if the lawsuit is successful but not if the lawsuit fails.
  • They’re usually salaries payable, expense payable, short term loans etc.
  • In a sense, a liability is a creditor’s claim on a company’ assets.
  • It makes it easier for anyone looking at your financial statements to figure out how liquid your business is (i.e. capable of paying its debts).
  • Are you the oldest coffee shop in town and have a loyal customer base?

Companies of all sizes finance part of their ongoing long-term operations by issuing bonds that are essentially loans from each party that purchases the bonds. This line item is in constant flux as bonds are issued, mature, or called back by the issuer. A liability is something a person or company owes, usually a sum of money. Liabilities are settled over time through the transfer of economic benefits including money, goods, or services.

Current Liabilities

Unearned RevenueUnearned revenue is the advance payment received by the firm for goods or services that have yet to be delivered. In other words, it comprises the amount received for the goods delivery that will take place at a future date. Interest payable – The interest amount paid to the lenders on the money owed, generally to the banks. Liability is an obligation, that is legal to pay like debt or the money to pay for the services or the goods utilized. In most cases, lenders and investors will use this ratio to compare your company to another company. A lower debt to capital ratio usually means that a company is a safer investment, whereas a higher ratio means it’s a riskier bet.


As a business owner, it’s likely that you already have some liabilities related to your company. A liability is anything that results in debt or is a potential risk, and it is used in key ratios to determine your organization’s financial health.

Example 1: Buying Property

This is a liability account that contains the amount owed to bondholders by the issuer. Bills payable – These bills generally include utility bills, i.e., Electricity bill, water bill, maintenance bills, which are payable. These taxes are collected by tax authorities from respective employers and paid for human welfare schemes, infrastructure development. This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post.

These are all examples of accounts you may have in your five main accounts. Your investors and lenders may use this same equation while doing a business valuation—the process of evaluating a business’s total economic value.