Running a business requires dealing with a lot of things simultaneously. For many people, it is like a juggling act. It is owing to the fact that business owners have to look for a suitable office location, complete the paperwork, and manage finances wisely.
In a case that you are managing the business in the advanced stages, you are surely bookkeeping the expenses and income. So, what about the liabilities? Are you tackling these also? Many people miss somewhat to consider responsibilities while managing business accounts.
However, it would help if you did not overlook the importance of comprehensive financial management. The article is aimed to explain everything people need to know about liabilities in a business. Keep reading!
What are Liabilities in Business?
Starting with the very basic, it is imperative to understand the meaning of business liabilities. The basic definition of International Financial Reporting Standards (IFRS) framework is:
“A liability is referred to the current obligation of a firm or an enterprise arising from the events that occurred in the past. The settlement of this obligation is expected to bring several economic perks for the company”.
In simple words, business liability is a legal or financial responsibility that a company has to deliver by means of services or payments. Every business possesses different types of liabilities. For financial, it is imperative to make proper calculations and add them to the general ledger.
Types of liabilities in accounting that every business must consider
Nevertheless, business owners owe to pay suppliers, vendors, employees, and the state. All these payments are mentioned in the accounting books for recordkeeping. The companies have to mark the debt to ensure the accuracy of finances.
Different types of business liabilities are as given below:
Legal Business Liabilities
Regardless of the nature and size of your business, legal obligations are a must for all and sundry. You need to comply with the commercial laws and international regulatory standards for business operations. The legal liabilities of the businesses are:
- Businesses need to meet the legal obligations in case of any injuries of workers. It also includes compensation for damages.
- The contracting companies whose responsibility is to look after the properties of other people have to bear the damage claims and respond according to the laws.
- The legal liabilities of the businesses also comprised the obligations of intellectual property. For instance, if the company uses some music for advertising pieces but don’t get permission from the owners of that music. It is a case of intellectual property breach.
- The companies need to comply with commercial laws in case of any mistake related to errors of omission and commission.
- The businesses need to comply with state laws for the welfare of their employees. Besides this, the companies are liable for ensuring workforce rights as per the international human resource regulations.
- Most importantly, companies need to fulfill taxation responsibilities. For instance, VAT registration is a must for the UAE based businesses meeting the required threshold.
The liabilities in accounting also called the payables in some cases. It generally comprised financial responsibilities over different terms. Let’s consider the detail to ensure effective understanding:
- Current or short-term liabilities are required to be paid within the year. These include the salaries, bills, sales taxes, payroll, overdue bank drafts, and other such payables.
- Non-current or the long-term liabilities include the payables that are due beyond the limit of one year. It may consist of capital assets, business loans, long-term leases, mortgages, bonds, and deferred taxes.
- Contingent liabilities are comprised of two types of liabilities, including must make payments and maybe the nature of payments need to be made in the future. For instance, if the company needs to replace a product or refund the payment.
Financial matters are critical in the business sector. Missing a single figure in accounting can cause significant damage to the business. Owing to this, acquire services of top bookkeeping and accounting firms in Dubai to manage all financial management tasks and activities. It will help you record everything optimally.
Get All-In-One Services for Business Liabilities
Summing up, every business needs to comply with the responsibilities in the light of state laws and international standards. The legal aspect enables the companies to deal with laws and regulations while the accounting liabilities compel the companies to ensure accountability and transparency. All responsibilities are essential because businesses need to maintain their position in the marketplace.
Although significant liabilities include legal and financial, still businesses shouldn’t ignore social responsibilities. These are some of the most critical corporate obligations. Under the corporate social responsibility, companies play an active role in the betterment of the communities.
Do you feel overwhelmed after reading all this? Get assistance from the experienced accountants and legal advisors for expert’s opinions in fulfilling your business liabilities!