Defining long-term liabilities
Long-term liabilities refer to the category of debts presented on the balance sheet of a company which are required to be repaid during the upcoming twelve months, but that instead are required to be paid back within a year or more. Putting other way, Long-term liabilities involve a future benefit of more than a year, like notes payable that mature after a period of more than one year. The Long-term liabilities, in accounting, are listed on the right wing of the balance sheet representing the source of funds.
Conventionally, the part of Long-term liabilities required to be paid within the coming 12 months are categorized as current liabilities. For instance, a loan with two due payments for $1,000 each, one in the next twelve months and the second after that date, the first $1,000 would be classified as a current liability unlike the second being classified as a long term liability. Long-term liabilities are, therefore, a way of indicating that something has to eb paid off in a time period longer than one year.
Some of the examples of Long-term liabilities include mortgage loans, debentures, and other bank loans.
Types of long-term liabilities
Long-term liabilities are the obligations of a company extending beyond the current year, or alternatively, beyond the current operating circle. Generally, the following Long-term liabilities are found on a company’s balance sheet:
- Financing Liabilities
These include notes payable (debt issued to a single investor), Bonds payable (debt issued to general public or investors’ group), and convertible bonds (debt with provision for bond holders to redeem their bonds for common shares, or bonds issued in combination with warrants to purchase stock.)
- Operating Liabilities
These include capital lease obligations (contract to pay rent for the use of plant, equipment, or property and involving the company to bear a risk as if it owned an asset), postretirement benefit obligations (retirement benefits payable under pension plan), and other expenses incurred (including deferred income tax or contingent obligations, like law suits that have not yet been settled).