Classifying Liabilities

Liabilities are classified in a similar manner.

Liabilities are considered to be current liabilities if the obligation is to be settled within 1 year or with in the current accounting period.

These debts are usually settled with the payment of current assets.
Examples of current liabilities are the following:

1. Accounts Payable
2. Taxes Payable
3. Salaries Payable
4. Water and Power Payable
5. Notes Payable (if the obligation is due with in 1 year)

Following current liabilities on the balance sheet are long-term liabilities, which are usually payable in more than a year.

Examples of long-term liabilities are:

1. Bonds Payable
2. Mortgages Payable

In the year in which a long-term liability becomes payable, it is usually converted to a current liability ( appearing under the current liability heading of the balance sheet).