What is a liability?

Resource that is:

Obligation that is:

1. Presently owed
2. Resulting from past events
3. Will result an outflow of resources

Examples: Loans, accounts payable, accrued expenses

1. Presently owed: the Company has a debt that is owed. Do not confused with a debt that it is presently due.
2. Resulting from past events: the transaction that gave rise to the debt happened in the past
3. Economic benefits: value needs to be provided to someone else to settle the debt

Example: Truck used for delivering agriculture products – purchased on credit

• The Company now owes a certain amount to the previous owner of the truck
• The Company made the agreement with the owner in the past (likely signed a contract). If the Company was in discussions with the owner of the truck but had not yet made closed the transaction, the amount owed is not considered a liability.
• Need to pay cash to the owner to settle the debt.

QS: What are some examples of liabilities?

We’ll now briefly discuss the most common liabilities you’ll come across.

Liabilities – examples

Accounts payable (creditors): money owed to suppliers or other entities (could be employees)

Bank loans: money owed to the bank

Accrued expenses: an expense that has been incurred but has not yet been paid (but it is likely it will be paid at a later date)

Exercise –Liabilities

Review the statement of financial position of Bralirwa as attached here and identify the liabilities. Jot down what criteria are met for each.

Note down any liability you identified that you don’t recognize. We’ll discuss these as in community.