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HomeMoneyIdentifying the Financial Liabilities for Entrepreneurs

Identifying the Financial Liabilities for Entrepreneurs

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Liabilities are important for a business because they play an important role in running the operations with ease. They even provide ways to reserve funds for future expenses that will help achieve goals to a large extent. In other words, liabilities refer to the amounts owned by an entrepreneur or company. It is necessary to know more about financial liabilities for entrepreneurs in detail before starting a business. This will help a lot to plan everything properly which gives ways to attain top positions in the markets. Moreover, liabilities enable an entrepreneur to manage a business efficiently to minimize risks.

Related Post: How to perform a financial statement analysis?

Understanding some financial liabilities for entrepreneurs

Understanding some financial liabilities for entrepreneurs

  1. Accounts payable

Accounts payable is a short-term liability and an entrepreneur has to pay money for creditors after buying goods. It is necessary to settle accounts payable within a year. Apart from that, accounts payable involves a set of procedures to follow before making payments to a creditor. Some of them include bill receiving, bill reviewing, updating bill details in records, and making timely payments. To make this process more efficient you should use accounts payable automation, and eliminate any human errors that might occur.

  1. Notes payable

Notes payable belong to a short-term liability when a business makes a promise to repay the lender with written records. It appears on a balance sheet under current liabilities when a business agrees to pay the same within a year. A note payable usually involves interests and entrepreneurs should aware of them while borrowing money.

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  1. Income taxes payable

Income taxes payable is a current liability and a business should pay taxes based on the revenues. On the other hand, entrepreneurs should know the laws with more attention before calculating income taxes.

  1. Wages/Salaries payable

Wages/ Salaries payables are the remunerations paid to workers/employees when they perform certain works. While salary is a fixed amount, wages are amounts paid to workers on an hourly basis.

  1. Unearned revenues

Unearned revenues refer to amounts paid by customers in advance when they want to buy some products. Some examples include deposits, magazine subscriptions, advanced booking of air flight tickets, and so on. They come under current liability based on the delivery of goods.

  1. Bonds payable

Bonds payable are long-term liabilities and issued by a business to generate more cash. A business or company issues bonds for tax benefits retained earnings, and other reasons. On the other hand, an entrepreneur should know the bond valuation techniques accurately that will help make a better decision.

  1. Loans and mortgages payable

Loans and mortgages payable come under liability that is due after one year. At the same time, a business should understand the term properly which will help run a business without any difficulties. Furthermore, it paves ways to accomplish goals in a business with high success rates.

  1. Accrued expenses

Accrued expenses are liabilities when a business plans to make payments in the future. Some examples of expenses include interests on loans, goods received, taxes incurred, etc. It is essential to calculate the same with certain tools that will help prefer a balance sheet with ease.

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  1. Contingent liabilities

A contingent liability refers to a potential loss that may occur in the future which will affect a business. Some examples of contingent liabilities include lawsuits, debts, IRS disputes, and product warranties. It is an important financial matter for a business and entrepreneurs should know the procedure before preparing a balance sheet.

  1. Warranty liabilities

Warranty liabilities are financial liabilities for entrepreneurs when a business spends money on repairs or replacement. Business entrepreneurs should calculate the same by using certain tools. They come under current liabilities in a balance sheet and new entrepreneurs should evaluate expenses with an experienced chartered accountant.

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