Question

What are the two categories of liabilities reported on the balance sheet? Provide

examples of each.

Short answer

Liabilities are classified into current and long-term liabilities.

Step-by-step solution

Definition of liabilities

Liabilities are the legal obligation or debt payable by the company.

Two categories of liabilities

The two categories of the liabilities are current liabilities and long-term liabilities:

Current Liabilities: Current liabilities are those liabilities that become due within one year. For example- accounts payable, short-term notes payable, etc.

Long-term liabilities: Long-term liabilities are those liabilities that become due in more than one year. For example- long-term loans, bonds, notes payable, etc.