Concept Of Passive Accounting
We explain what the liability is, how this type of accounting obligations is classified and its relation to assets and net worth.
What is the liability?
It is understood as a liability, in financial accounting , to the obligations of a person or company, that is, to its debt with various types of creditors . The liability is then the opposite of the asset, which represents the financial assets and rights that the person or company possesses .
In this sense, liabilities include all contractual commitments and debts, collected in promissory notes , payment commitments, pending liquidation, wages payable, taxes generated, etc. and all of them must be deducted from the net worth of the company or person , since they are capital outflows (investments or losses).
The liabilities of a company are part of the information clarified in a balance sheet of the situation (accounting balance), where they should be distinguished from the assets.
They are, together with the net patrimony, the possible sources of financing of a company, being the liabilities always a form of external or foreign financing (indebtedness).
Therefore, the payment of liabilities is usually prioritized in order to acquire solvency, and often the record of the same of a company or of a person serves as reference for its credit assessment and other important financial procedures.
Classification of liabilities
The liability can be of several types:
- Required liabilities . It covers the total of debts, documented or not, that the person or company has with third parties, a product of external financing. Said liabilities involve short or long-term obligations (classified as short or long-term liabilities, therefore), depending on the stipulated date of cancellation of the debt, that is, the moment in which payment is required.
- Liability not due . This concept would cover the total of the reserves and own funds of a company that can not be disposed of when belonging to the shareholders, but that can not be demanded by them either. However, many accountants do not agree with the existence of this.
- Contingent liability . An obligation arising from past events, which may or may not materialize in the future depending on certain conditions, and which may or may not become a specific obligation to pay.
Relationship between assets, liabilities and equity
We already know that the assets and liabilities represent, respectively, the holdings and revenues and the debts and expenses of the accounting of a company or of any other person. On the other hand, the patrimony is the sum of the contributions of the owners , once discounted the operative expenses and the losses; that is, it is the total of what is held as social capital in a company, once the losses were discounted and the profits (or profits ) were added up.
This patrimony is therefore made up of patrimonial elements, which are the list of the different assets and liabilities to be taken into account.
Net Worth, then, is the financing sources owned by a company or person, that is, the own resources available without third party financing (which generates a liability).
So that:
- The asset is the set of assets owned, as well as their rights of use and transformation, capital, debts receivable. They are the destination (the use) of the financial means and the economic structure of the company.
- The liabilities and net assets are the sources of financing, external and internal, respectively, that is used to start a project. They are the source (origin) of the financial means, and they make up the financial structure of the company.
Hence, the equity balance of a company is achieved by comparing or comparing its economic structure (asset) and its financial structure (liability + net worth). Also, the following quantifiable relationships can be given numerically:
- Asset = Liability + Net Equity
- Net Equity = Assets - Liabilities
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