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Liability is the legal responsibility to repay debts or fulfill financial obligations.
It represents the amount of money owed to others, such as suppliers, lenders, or investors. Think of it as the "I owe you" in the financial realm.
🌟 Remember, liabilities are not to be feared but rather understood and managed responsibly.
In Modeliks, we focus on two main liability types 👇
1. Current Liabilities
Refer to debts or obligations that are expected to be settled within a short period, typically within 1 year⚡
📢 Examples
- Accounts Payable: This represents money owed by a business to its suppliers for goods or services received but not yet paid for.
- Short-Term Loans: These are loans with a repayment period of less than a year. Businesses often take short-term loans to cover temporary cash flow needs or to finance specific projects.
- Accrued Expenses: These are expenses that a business has incurred but hasn't yet paid. Expenses such as wages or salaries owed to employees, taxes payable, or utility bills.
2. Long-Term Liabilities
Debts or obligations that extend beyond a year. They usually involve larger sums of money and represent financial commitments that will take more time to repay⏳
📢 Examples
- Long-Term Loans: Businesses may take long-term loans to finance major investments or purchase high-value assets, such as real estate or machinery. The loan is repaid in installments over an extended period.
- Mortgages: Specifically used for purchasing property or real estate. The repayment period typically spans several years or even decades. The property acts as collateral, providing security for the lender.
- Bonds: Bonds are debt instruments issued by companies or governments to raise capital. Investors purchase bonds, and the issuer promises to repay the principal amount along with periodic interest payments over a specified time frame.