Liabilities are debts or financial obligations a business or person has. Any loans a company has taken out must be repaid. Usually, if the agreed term of the loan is less than five years, it’s called a short-term loan, however, if it is greater than five, it is classified as a long-term loan.
For example…
As the company’s accountant, Kate, from Two Times Two Childcare Centre calculates the liabilities of the business. She finds that they still owe the bank fifty thousand dollars including interest and they need to repay the money borrowed from the parents’ council of five thousand dollars, interest free. The total liabilities for the childcare centre is fifty five thousand dollars.
