Examples of Long-Term Liabilities

Follow us on LinkedIn

Liabilities are the obligations of a business to third-parties that it must settle in the future through some form of compensation. These may include loans taken from financial institutions or credit purchases made from suppliers. Based on their life, liabilities can either be long-term, known as non-current liabilities, or short-term, known as current liabilities.

What are Long-Term Liabilities?

Long-term liabilities are obligations that a business must pay after the upcoming 12-months. For every liability that a company has, it must determine how long it will take to settle it. Based on this information, the company can then classify it as long-term or short-term. This classification is crucial when presenting liabilities on the Balance Sheet.

Add your business to our business directory https://harbourfronts.com/directory/ Add your business. Also check out other businesses in the directory

Long-term liabilities usually represent long-term debt obtained by a company. The reason why companies acquire long-term debt is to finance projects that take longer. Debt finance usually comes at a lower cost as compared to equity finance. Similarly, long-term debt also comes with a lower interest rate as compared to short-term debt. Therefore, companies usually prefer long-term debt as compared to other sources of finance.

What are some examples of long-term debt?

Different items comprise the long-term debt of a company. Usually, all these may not be a part of the company’s debt structure. A company may utilize any source of long-term debt based on its nature and needs. Given below are some of the examples of long-term liabilities.

Loans

The most common type of long-term debt is loans taken from financial institutions. These represent monetary obligations that the company must repay. However, companies may also issue debt instruments in the form of bonds, debentures, or notes payable. In exchange for these instruments, the company can obtain a loan.

In exchange for loans, companies usually pay interest based on predetermined rates. Similarly, companies may also get loans against an asset offered as collateral. Loans also come with a maturity date, which is the time the company has to repay the principal amount of the loan. There are also other more complex types of loans that companies can obtain.

Finance Lease

Finance lease is a type of lease that lasts more than 12 months. Since it represents a liability that a company must repay, it is a part of long-term liabilities. Financial leases represent payments against an asset that the company usually gets ownership of at the end of the lease period. Accounting standards require companies to split finance leases into current and non-current portions.

Deferred Tax Liability

The tax laws of a particular country may be different from its accounting standards. Therefore, there might be some differences between the carrying value of items according to the accounting standards and tax laws. These differences create a deferred tax asset or liability for a company. Accounting standards require companies to classify deferred tax liabilities as long-term liabilities. However, these are not monetary liabilities, unlike the above two types of long-term liabilities.

Other long-term liabilities

Apart from the above, there are some other liabilities that companies classify as long-term. These may include mortgages payable or pension-related liabilities. However, these types are less common as compared to the types discussed above.

Conclusion

Long-term liabilities are obligations that a company must settle after a year. There are various reasons why companies prefer long-term liabilities as compared to the short-term. The most common examples of long-term liabilities are loans, finance leases, and deferred tax liability.

Further questions

What's your question? Ask it in the discussion forum

Have an answer to the questions below? Post it here or in the forum

LATEST NEWSThe South Park stock market jinx could be coming for high-flying weight-loss stocks
The South Park stock market jinx could be coming for high-flying weight-loss stocks

An analysis found that a stock underperformed the S&P 500 by a median of 7% in the year after being featured in the animated comedy.

Stay up-to-date with the latest news - click here
LATEST NEWSEarnings call: CollPlant reports Q1 2024 results and corporate updates
Earnings call: CollPlant reports Q1 2024 results and corporate updates
Stay up-to-date with the latest news - click here
LATEST NEWSEarnings call: Covalon turns profitable with strong Q2 performance
Earnings call: Covalon turns profitable with strong Q2 performance
Stay up-to-date with the latest news - click here
LATEST NEWSUS health insurer shares fall after UnitedHealth flags Medicaid enrollment issues
US health insurer shares fall after UnitedHealth flags Medicaid enrollment issues
Stay up-to-date with the latest news - click here
LATEST NEWSBESREMi ® (Ropeginterferon alfa-2B) Shows Greatest Benefit Among Cytoreductive Therapies in Lowering Symptomatic Burden of Polycythemia Vera (PV): Real-World Analysis Published at ASCO
BESREMi ® (Ropeginterferon alfa-2B) Shows Greatest Benefit Among Cytoreductive Therapies in Lowering Symptomatic Burden of Polycythemia Vera (PV): Real-World Analysis Published at ASCO
Stay up-to-date with the latest news - click here

Leave a Reply