Other payables generally come with headings “trade payables and others” in the financial statement of large listed public companies. Other payables are a type of categorization of liabilities.
These are residual trade or non-trade payables that have not been specified by the company or regulations or do not meet the criteria of being classified separately.
They are referred to as uncommon and insignificant, like the major accounts of current liabilities as trade payables, accounts payable, income taxes payable. Other payables are listed under the liabilities side of the firm’s balance sheet.
These come below the headings of trade payables. Other payables are characterized as uncommon or insignificant. Other payables are rarely recorded in the financial statements. Hence, the net balance in the Other payables accounts is typically small.
Understanding Other payables
Other payables consist of temporary accounts which even do not repeat every year. Depending on the industry and industry practices, the explanations on Other payables can be found on the quarterly and annual filings by the company.
To simplify the miscellaneous trade and non-trade payables of the large-sized companies, the term “Other payables” has been established to represent all the small items of trade and non-trade payables.
The major components of liabilities are either long-term liabilities or current liabilities. Long-term liabilities are non-current liabilities such as bank loans, debentures, and long-term notes payable.
These liabilities have a span of more than 1 year and are payable in more than 1 year. On the other hand, current liabilities are short-term liabilities that have to be paid within 12 months.
They are the liabilities that can be easily paid by liquidating current assets in daily operations. Current liabilities include trade payables, accounts payable, income taxes payable. Trade payables include
Current liabilities that are not specified or uncommon won’t be categorized under current liabilities. Instead, they will be thrown into the residual heading of Other payables.
Instead, these liabilities will be taken to a generic “other” category and recognized as Other payables on the balance sheet.
Examples of Other payables shall include:
Special Considerations in Case of Other payables
For publicly listed companies, they have to clearly break down other payables in their quarterly and annual filings.
However, they represent no so significant amount of money. Hence, the companies may choose to ignore showing Other payables separately.
However, other payables would be placed under footnotes to financial statements. Rarely explanations are needed for other payables.
However, when needed, the company shall offer explanations in notes to accounts. Other payables are generally assumed to be disposed of within an accounting cycle that would be 12 months.
The nature of each other payables needs to be determined. The management needs to know about the liquidity of other payables.
If accounts in Other payables in the past year become material in the current year, they may need to be disclosed into major defined current liabilities accounts. This would slowly create insightful information in the minds of investors.
There is no formula for computing the Other payables. Either the small amounts will aggregate to form Other payables, or there won’t be any Other payables.
it is represented as,
Other payables = Petty expenses Payable +Wages payable to cleaning staff +Supplies payable
Let’s take the example of Sinra Ltd that had recently filed its annual financial statements. The following details about current liabilities were available.
Petty expenses Payable $45
Wages payable to cleaning staff $105
Supplies payable $1095
The Calculation of Other payables can be done as :
|Petty expenses Payable
|Wages payable to cleaning staff
|Total Other payables
When to disclose Other payables separately?
Mathematically, the chances of disclosing Other payables separately stands zero. The large listed companies generally go by the heading “Trade Payables and Other,” where Other payables are incorporated.
However, circumstances change abruptly and management has to evaluate this question carefully before any disclosure is being made.
Most of the time, company regulations are clear on the threshold based on percentages, and accounts need to cross to be separately disclosed on the balance sheet.
It is industry practice however that if Other payables are more than 10% of current liabilities, they need to be shown separately.
Note to financial statements needs to be attached to the balance sheet explaining the breakup of Other payables if possible. Hence, management has to be careful in doing so.