Transparency in the presentation of a company's liabilities is crucial when preparing a company's balance sheet. It is important in building confidence among investors, lenders and other stakeholders. Liabilities, i.e. a company's liabilities, are an important element in assessing its financial health and stability in the market. In this article we discuss how to effectively present liabilities in financial reports so that they are clear, understandable and useful to all stakeholders. You may find this helpful professional accounting office.
What are liabilities?
Liabilities is a term used in finance and accounting to describe the sources of financing of a company's assets, or assets. Liabilities reflect a company's liabilities to other parties, as well as equity contributed by owners or shareholders.
Basic rules for the presentation of liabilities
Liabilities are divided into two main categories: short-term and long-term. Short-term liabilities (current liabilities) are those that the company has to repay during the year. In turn long-term liabilities (non-current liabilities) are liabilities with a maturity of more than one year.
Company balance sheet is a company's most important financial statement that summarises its assets and liabilities. It should present the liabilities clearly, starting with short-term liabilities and ending with long-term liabilities. This structure makes it easy to understand which liabilities the company has to pay in the near term and which charges it has to pay in the long term.
Liabilities in the balance sheet - accountancy firm explains what they include
Current liabilities consist primarily of:
- short-term loans and borrowings: bank loans and borrowings that must be repaid within a year.
- trade payables: amounts due to suppliers for goods and services.
- tax liabilities: dues to tax offices for taxes.
- other current liabilities: other liabilities such as staff salaries, social security contributions.
Long-term liabilities mainly include:
- long-term loans and borrowings: financial liabilities with a maturity of more than one year.
- Bonds: liabilities arising from bonds issued.
- reserves: provisions for future liabilities, such as provisions for severance payments or provisions for environmental liabilities.
- other long-term liabilities: other long-term liabilities such as finance leases.
Accounting firm advises - how to report liabilities
Financial reports should be prepared in accordance with international accounting standards (IFRS) and national regulations (in Poland these are mainly Accounting Act). This ensures the uniformity, comparability and comprehensibility of the financial data and the compliance of their presentation with applicable law.
All material liabilities should be described in detail in the notes to the balance sheet. These notes should include information on maturities, interest rates, terms of borrowings and other relevant details.
Each element of the liabilities should be presented fairly and transparently, without hiding or manipulating data. It is important that the reports are also easy to understand for people who are not financial experts.
Transparent financial reporting - important guidelines
Plan the structuring of the report: divide the report into sections, such as balance sheet, profit and loss account, cash flows and explanatory notes. Use headings and subdivisions to make the document easier to navigate.
Use diagrams and tables: the use of diagrams and tables can help to present financial data visually, making it easier to understand.
Update financial data regularly: Regular updating of financial data helps to maintain full control over all details of the company's financial situation.
Ensure a good quality financial audit: regular carrying out financial audits assists in verifying the reliability and compliance of data with applicable standards.
Importance of reliable reporting
Transparent reporting of liabilities by accounting office is key to building the trust and credibility of the company. Investors, lenders and other stakeholders need to be confident that the data presented in financial reports is accurate and reliable. Transparency in reporting also helps the company to better manage its finances and make informed business decisions.
Transparent and fair presentation of liabilities in financial reports requires knowledge of accounting standards and attention to detail in the compilation and depiction of data. Properly prepared balance sheet not only fulfils legal reporting requirements, but also supports decision-making processes and builds a positive corporate image in the eyes of stakeholders. Our accounting office AMG will be happy to prepare it for you.
