Question

Give a classification of liabilities.

Answer 1

1. Fixed Liabilities: These liabilities are repayable after a long period of time. These are not repayable within a short period or during the operating cycle of business. Long-term loans, loans or mortgage and debentures are examples of fixed liabilities.
2. Current Liabilities: These liabilities are repayable within a year or in the near future. These include trade creditors, bills payable, outstanding expenses, bank overdraft, etc.
3. Contingent Liabilities: These are anticipated liabilities. These are uncertain and may or may not arise in future on the happening of a certain event. If the contemplated event occurs, a contingent liability becomes a real liability. Liability on bills discounted, disputed claims or liability under a damage suit, guarantee for a loan are examples of contingent liabilities.