Balance Sheet: Current Liabilities, Long-Term Liabilities, Total Liabilities

Video #7

Transcript

Alright, so we’re going to take a look at the liabilities and owner’s equity section of the balance sheet. We’ll start first of all by taking a look at the liabilities, which, like the assets are divided into current and long-term:

Current liabilities: things that are typically going to be paid out in the shorter period of time (in a year) such as accounts payable (the amount of money that we owe to our suppliers) and taxes payable (the money that we owe to the government for collection of sales taxes and employee deductions).

Long-term liabilities: things like a mortgage and an equipment loan — things that will take longer than one year to pay back.

So let’s plug in some numbers so you can see how this totals. For accounts payable, we owe $2,000 to our suppliers and we owe $1,500 to the government for sales taxes. We do a subtotal and add these and end up with $3,500 in current liabilities.

The mortgage, the amount we have left outstanding, is $100,000 and the equipment loan, we owe $12,000 on that. We’ll subtotal our long-term liabilities and that is $112,000.

And then we add the current liabilities and the long-term liabilities together ($3,500 plus $112,000) and we end up with this $115,500. Now we’re not at the bottom of our liabilities and owner’s equity section so we don’t do a double-underline  — not quite yet. That will come in the next video.

Thanks for sticking it out. You’re almost at the end of the second set of financial statements, so way to go.

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