Short-term liabilities and their characteristics

Commitments are one of the most important elements in the financial report. They are divided into two types: current (short-term) and non-current (long-term). Classification occurs on a time basis.

Short-term obligations are obligations that require current resources for their liquidation. These include:

- accounts payable ;

- dividends to be paid;

- short-term bills of exchange;

- announcements;

- Accrued liabilities;

- tax payments;

- refundable deposits;

- conditional payment;

- Unearned income is prepaid;

- part of the long-term debt that must be paid in the current period;

- demand debt.

So, short-term liabilities are repaid at the expense of current funds. These are resources that could be used by the organization for daily activities. Here is the main difference between current funds and long-term ones. Short-term resources have one more feature - they are converted into money or fully used for one balance sheet period. Usually refers to the calendar year.

Short-term liabilities are classified on several grounds.

1) Obligations related to the conduct of operations:

- debt on purchased raw materials, materials, goods;

- received advances;

- rent ;

- taxes;

- Accrued salaries of staff and management.

2) Short-term liabilities that will be repaid within 12 months from the date of preparation of the accounts:

- Indebtedness on non-current assets;

- long-term liabilities payable within the next 12 months from the date of preparation of the accounts.

3) The amounts that will be required to repay the costs in the next 12 months from the time of the balance sheet:

- bonuses;

- compensation for holidays;

- Other.

Short-term liabilities are of a conditional type. They arise due to the fact that there are factors that contribute to the emergence of uncertainty about future profits (losses). Risks can serve as an example. With such uncertainties, several degrees of probability are distinguished: 1) large; 2) the possibility; 3) small.

Consider several types of short-term obligations.

1) Accounts payable - bills for a particular product or services that are purchased for the economic activity of the enterprise. The maturity of such an obligation is usually specified in the contract.

2) Short-term bills are essentially similar to accounts payable. The main difference is that they are used to pay for services and goods that can be purchased not for the main activity of the firm.

3) Part of the long-term debt that must be covered in this reporting period. This amount is attributed to short-term liabilities and is deducted from non-current debts.

4) Transfers that the company makes at the request of the lender. These payments are also reflected as short-term liabilities in the balance sheet.

5) Accrued payments include: staff salaries, interest on loans.

6) Advances and deposits that are subject to return. Such payments have become a popular form of relations between market actors. For example, a firm requests an advance, which, if the partner refuses to do so, can serve as a good source to cover losses, penalties, etc.

7) Prepaid earnings arise in situations where cash is transferred to the company before the service or delivery of the goods is carried out. For example, the sale of air tickets.

8) Taxes - withholding of funds in favor of local or central authorities.

9) Arrears arising from non-payment of employee leave. This situation occurs if employees do not use days off for the year.

10) Payment of dividends to holders of shares and bonds is mandatory subject to payment after summing-up and submission of accounts for the year.

Short-term liabilities of the enterprise must be paid in a timely manner. Otherwise, penalties and fines may be added to the payment amount.