Key Elements in Financial Analysis: Liabilities
•By Mahersaham Team
Artikel ini juga tersedia dalam Bahasa Melayu
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Right, today I will continue sharing about the key elements in financial analysis.
Previously, I have explained the first important element, which is assets.
For this series, I want to explain in detail the second element, which is liabilities.
Liabilities, in simple terms, refer to debts or obligations.
They exist due to credit purchase transactions.
This means we receive goods, products or services first before making payment.
These terms may be new to some readers.
Let us break them down.
This refers to a company''s business debt owed to sellers or suppliers for providing goods or services on credit.
It is a debt that needs to be paid within a short period and falls under current liabilities.
It may also include money refunded to customers.
Therefore, such amounts are included in accounts payable.
According to Investopedia, accrued liabilities are expenses incurred by a business but not yet paid.
A company can accumulate liabilities for a number of obligations, and accrued liabilities are recorded as short-term or long-term liabilities on the company''s balance sheet.
This refers to a company''s debt owed to certain financial institutions such as banks.
A deferred tax liability is a tax that has been assessed or is due for the current period but has not yet been paid, according to Investopedia.
For example, every month Company ABC pays tax of RM1,000 for a year, so the total tax paid annually is RM12,000.
However, when the company checks, it turns out they actually need to pay RM30,000. What happens is that Company ABC still owes the Inland Revenue Board (LHDN) another RM18,000.
That RM18,000 is known as a current and deferred tax liability.
This situation occurs when Company ABC has already received money from customers but the product or service has not yet been delivered to the customers concerned.
What happens is that the sales or revenue have not been recorded yet.
Therefore, unearned revenue is classified under liabilities.
Liabilities are obligations or debts that a company needs to pay. They are divided into two types: current liabilities (short-term debts) and non-current liabilities (long-term debts).
Current liabilities are debts that need to be paid within less than a year, such as accounts payable and accrued expenses. Non-current liabilities are long-term debts exceeding one year, such as bank loans.
Understanding liabilities helps investors assess a company''s financial health. A company with liabilities that are too high compared to its assets may be high-risk and less financially stable.
Unearned revenue occurs when a company has received payment but the product or service has not yet been delivered to the customer. It is considered a liability because the company still owes the customer a product or service.
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