Saturday, October 13, 2007

The short and long of it.

What's the difference between long term and short term liabilities?

Some liabilities are short term, while others are long term. If you purchase goods, the amount owing to the supplier is payable within a period 30 to 90 days. This is a short term liability otherwise known as a current liability.

The amount payable to a hire purchase company, on the other hand, is a long term liability, as the repayment period extends beyond a year.

For liabilities, the short and long of it relates therefore to the time in which the amount owing is payable.

Short term or current liabilities are payable in periods of less than a year, whereas long term liabilities are payable over a period of more than a year.