Question

does it matter how you classift liabilities?

Answer 1

Yes, it matters how we classify liabilities. | Liabilities are the legal obligations which the business has to pay. Liabilities are considered as the sacrifices of financial advantages that one person or business has to make to other person or business because of past occasions or past exchanges. Mainly there are three types of liabilities 1) Current Liabilities; Current Liabilities are those liabilities which become due within one year. Therefore, if we have properly classified the liabilities then we know how much we have to make payment with in one year out of the current assets 2) Long term Liabilities; Long term liabilities are those liabilities which will become due after one year and by properly classifying we know in advance how much we have to arrange cash foe paying them 3) Contingent Liabilities; Contingent liabilities are those liabilities which may or may not occur in future Although total liabilities will remain same whether we classify or not but if we properly classify them then it becomes easy for us or the business to make arrangement for paying them.