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Liabilities, do you know yours? Do you know what liabilities are? They are obligations of the company. This means that you are obligated to pay someone. The types of liabilities include security deposits, withholdings, payroll liabilities, tax liabilities, promissory notes payable, accounts payable, credit cards, etc. It is important that you are tracking the correct amount of liabilities on your balance sheet. Too many or too few liabilities on your balance sheet provide an inaccurate reflection of your business.
Security deposits and retainers should be recorded on your books as liabilities because you are obligated to perform a service, deliver a product, or return the money to your client / lessee. It does not become revenue until you have performed the service or sold the product. These obligations are increased and then you send the money to the appropriate government tax agency at the necessary time. You should increase these obligations as you go along to show that your business is required to make these payments. These payments include state and federal withholdings, Social Security and Medicare (corporate and individual part), unemployment, sales taxes, etc.
Notes payable are liabilities your business incurs when you sign a note with a lender for the purchase of a fixed asset, an operational note, etc. Each time you make a loan payment, you are paying a portion of the principal (liability) and interest expense. Do not post the full payment to any of these accounts; They must be divided according to their repayment schedule. You can create an amortization schedule in your QuickBooks software or contact your bank for a copy of the amortization schedule. Depending on the exact payment date, your interest may fluctuate, but an adjusting entry at the end of the year can correct any small variations.
Accounts payable are those revolving accounts that you have established with your suppliers. Your supplier delivers supplies throughout the month and you pay for them last, which creates an obligation on your part. You received the supplies and are obligated to pay the supplier. Credit cards are also a responsibility of your company. You should keep track of your credit card liability on your books to show how much your business owes. Overvaluing your liabilities makes your capital undervalued. Neither of these situations is appropriate for your balance.
Your balance sheet shows your assets (what you own), your liabilities (what you owe), and your equity (assets-liabilities) in the business. It is imperative that you record your liabilities correctly. Using accounting software like QuickBooks can help you with the proper presentation of your balance sheet, but it is important that you have an accountant to help you set up the accounts and help you with the proper transactions so that your books reflect your business.