which of the following are long-term liabilities?

A ratio higher than 1.0 means the company has more debts than assets, which means it has negative equity. In Clear Lake’s case, a 60 percent debt-to-assets ratio indicates some risk, but perhaps not a high risk. Comparing Clear Lake’s ratio to industry averages would provide better insight. Leases payable is about the current value of lease payments that should be made by the company in future for using the asset. This is recognised only on the condition that the lease is recognised as a finance lease.

Long-term liabilities are obligations that are not due for payment for at least one year. These debts are usually in the form of bonds and loans from financial institutions. These are tax liabilities of a business which it needs to pay in case the business earns profit.

Times Interest Earned (TIE) Ratio

As a small business owner, you need to properly account for assets and liabilities. If you recall, assets are anything that your business owns, while liabilities are anything that your company owes. Your accounts payable balance, taxes, mortgages, and business loans are all examples of things you owe, or liabilities. It is important to realize that the amount of retained earnings will not be in the corporation’s bank accounts. A relatively small percent of corporations will issue preferred stock in addition to their common stock. The amount received from issuing these shares will be reported separately in the stockholders’ equity section.

  • Long-term debt’s current portion is a more accurate measure of a company’s liquid assets.
  • Called contingent liabilities, this category is used to account for potential liabilities, such as lawsuits or equipment and product warranties.
  • Deferred tax liabilities, deferred compensation, and pension obligations may also be included in this classification.
  • These debts are usually in the form of bonds and loans from financial institutions.
  • This is because there are fewer commitments through debt service providers.
  • You need to do this through regular payments, called debt service.
  • Also, the risk-to-rewards ratio is distributed as per the contribution towards the capital.

Long-term liabilities are a useful tool for management analysis in the application of financial ratios. The current portion of long-term debt is separated out because it needs to be covered by liquid assets, such as cash. Long-term debt can be covered by various activities such as a company’s primary business net income, future investment income, or cash from new debt agreements. For many successful corporations, the largest amount in the stockholders’ equity section of the balance sheet is retained earnings. Retained earnings is the cumulative amount of 1) its earnings minus 2) the dividends it declared from the time the corporation was formed until the balance sheet date.

Type 5: Capital leases

Loans for machinery, equipment, or land are examples of long-term liabilities, whereas rent, for example, is a short-term liability that must be paid within the year. A company’s long-term debt can be compared to other economic measures which of the following are long-term liabilities? to analyze its debt structure and financial leverage. A balance sheet presents a company’s assets, liabilities, and equity at a given date in time. The company’s assets are listed first, liabilities second, and equity third.

  • Long-term liabilities are typically due more than a year in the future.
  • When a business lists long-term liabilities in their accounts, the current portion of this debt is separated from the rest of the debt.
  • Some examples of how the Income Statement and the Cash Flow Statement can affect long term obligations are listed below.
  • This could create a liquidity crisis where there’s not enough cash to pay all maturing obligations simultaneously.

Most accounts payable items need to be paid within 30 days, although in some cases it may be as little as 10 days, depending on the accounting terms offered by the vendor or supplier. Accounts payable liability is probably the liability with which you’re most familiar. For smaller businesses, accounts payable may be the only liability displayed on the balance sheet. While these obligations enable companies to accomplish their near-term objective, they do create long-term concerns. Companies eventually need to settle all liabilities with real payments. If the obligations accumulate into an overly large amount, companies risk potentially being unable to pay the obligations.