Question

Describe two classifications of Liabilities and the listing order. Give 2 examples of each classification of liabilities.

Answer 1

Basically there are 3 main classification of liabilitie. They are:-

1) current liabilities: they are short term liabilities generally they should be due with in one year

Example: accounts payable, outstanding experience, prepaid incomes, short term borrowings etc.

2) Non - current liabilities: these are also known as long term liabilities, generally these liabilities are due more than one year.

Example: Bonds payable, long term notes payable, mortgage payable.

3) contingent liabilities: these are the event that may or may not happen depending on certain event.

Example: lawsuits, product warranty

Order of listing liabilities:

They are generally listed as per traditional approach, but typically list order is short term to long term i.e. current liabilities to non- current liabilities.

This will help to know what is due when it is due.

Contingent liabilities are not listed in balance sheet they are off balance sheet items. If they is certainly happening of event then provision will be created in the books, till then there are not part of balance sheet.