Liabilities can be defined as the amount a company owes to its suppliers, or parties in exchange of goods and services it has utilized over the course of time.
There are two main types of liabilities, which can be referred to as Current Liabilities as well as Long-Term Liabilities. As far as their inclusion is concerned, it can be seen that they are included in the Statement of Financial Position.
Current Liabilities are liabilities that need to be paid in a relatively quicker time frame, probably over the course of the coming 12 months.
Examples of Current Liabilities include accounts payable, notes payable to banks (or others), accrued expenses (such as wages and salaries), taxes payable, and other installments that have to be completed from the main loan that has to be paid.
They are listed in the order in which they have to be paid. For example, accounts payable are supposed to appear first, since they are generally paid within a time frame of 30 days. In the same manner, Notes Payable are generally due in 3 months, and therefore, they are represented as a second liability to appear on the balance sheet.
On the other hand, Non-Current Liabilities are included in the Financial Statements (Balance Sheet), below Current Liabilities.
Examples of Non-Current Liabilities include long-term lease, credit lease, bonds payable, notes payable, and deferred tax liabilities. The reason behind Non-Current Liabilities being placed below Current Liabilities is simply the fact that they do not have to paid urgently
As mentioned earlier, it can be seen that both, Current and Non-Current Liabilities are mentioned on the Balance Sheet, because of the fact that it is helpful for the stakeholders to get a clear understanding of the existing liabilities of the business by looking at these figures. Therefore, it is rudimentary to include them in the Statement of Financial Position.
However, pertaining to Current and Non-Current Liabilities, it can be seen that the cost of servicing these debts and loans is mainly included in the Income Statement. Examples of such charges include finance costs, and other variable expenses pertaining to liabilities.
The amount that is represented on the Financial Statement is just the amount that the company owes, net of all the charges and installments that have been paid for.
It is important to list them in order in which these payments have to be made, because of the reason that it gives stakeholders the idea of upcoming expenses, in terms of repayments that are supposed to be made to the creditors.
Similarly, it also gives an idea of the cash outflow that is expected as a result of the coming due dates, which should be honoured for better results. Therefore, listing them in order of payments that need to be made to make it easier for purposes of analysis and evaluation from the perspective of the user.