In my last post, Understanding Assets on the Balance Sheet, I discussed the different types of asset accounts. Today I’ll give information on the remaining accounts that appear on the balance sheet: Liabilities and Equity.
Liabilities – An obligation of an entity arising from past transactions or events
- Current Liabilities – Reasonably expected to be liquidated within a year
a) Wages – Payment for labor or services to a worker
b) Taxes – Income, payroll, property, and sales
c) Accounts Payable – Money which a company owes to vendors for products and services
d) Unearned Revenue – Payment received before a good is sold or a service is provided - Long Term Liabilities – Not expected to be liquidated within a year
a) Loans – An amount of money borrowed with a promise that it will be paid back
b) Notes Payable – A promise made by a party in a contract to repay a debt at a specified time or on demand under definite terms
c) Long Term Leases – Fees paid for a certain period of time to use property owned by another, usually real estate or equipment
d) Pensions – A sum of money paid regularly as a retirement benefit
Equity – The remaining value (net worth) of the business
a) Paid in Capital – Money invested into the business by owners
b) Stock – Amount paid into the business by investors to purchase ownership of the company
c) Owner’s Draw/Distributions – Amount removed from the business not paid through payroll or dividends
d) Net Income – Profit (or loss) from the current year
e) Retained Earnings – Profit reinvested into the business
Assets, liabilities, and equity accounts appear on the balance sheet with assets listed at the top, liabilities in the middle, and equity at the bottom. Assets = Liabilities + Equity
