Most companies have liabilities

by: Mohammad Hafiz

Most companies have liabilities. These liabilities, otherwise known as debts, are either short-term or long-term. Short-term liabilities are due in less than one year, while long-term liabilities are due after a year or longer. The balance sheet is the financial statement that shows all of the assets of the company as well as all of the liabilities associated with the assets. On the balance sheet, liabilities equals assets minus stockholders' equity. Use the balance sheet equation to calculate liabilities. if

}StepAdd a company's assets to calculate total assets. Assets are all things the company deems valuable and include both current and non-current assets. Current assets (short-term) are assets that are convertible into cash within one year; non-current assets (long-term) are assets of a more permanent nature. Assets are usually the first section on the balance sheet. For example, assume that current assets are $3,000 and non-current assets are $7,000. Add $3,000 and $7,000 to get total assets of $10,000.StepAdd the items in the stockholders' equity section of the balance sheet to calculate total stockholders' equity. Items in the stockholders' equity section typically include the shareholders' investment and retained earnings. Retained earnings are earnings that are not distributed to shareholders. Shareholders' investment is money contributed from the owners. As an example, say the shareholders' investment is $1,500, and retained earnings are $500. Add $1,500 and $500 to get $2,000 in total stockholders' equity. StepSubtract total stockholders' equity from total assets to calculate total liabilities. In this example, subtract $2,000 from $10,000 to get $8,000 in liabilities. This means that $8,000 of assets are paid for with liabilities, or debts, to the company.

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