What are Long Term Liabilities?
The accounting long term liabilities definition is any liabilities which are not current liabilities.
Long term liabilities are those which are payable in a period of time greater than the normal operating cycle of the business or twelve months, if longer.
For most businesses, the operating cycle is shorter than twelve months, and so long term liabilities are usually those due in more than twelve months from the balance sheet date.
Long term liabilities are sometimes referred to as non current liabilities, and are shown on the balance sheet between current liabilities and equity, forming part of the total liabilities of the business.
Examples of Long Term Liabilities
Examples of long term liabilities include the following:
- Long term bonds payable
- Long term notes payable
- Deferred revenue
- Long term loans
- Deferred income taxes
- Long-term unearned revenue
- Long term mortgages payable
Long Term Liabilities Example
It is important that liabilities are correctly classified into current and non current components. For example, suppose a business issued 5,000 bonds paying 6% interest at the start of the financial year, January 1 2015. The bonds are issued for 500,000, and the business has an obligation to redeem 500 bonds each year starting from 2016.
At the end of the first year, December 31 2015, the interest payable of 500,000 x 6% = 30,000, and bonds of 50,000 due to be redeemed in 2016, are shown as current liabilities as they are due within 12 months of the balance sheet date. The remaining bonds of 450,000 are shown as long term liabilities as they are due to be redeemed in more than 12 months from the balance sheet date.
For further information on long term liabilities see the Wikipedia definition.
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About the Author
Chartered accountant Michael Brown is the founder and CEO of Double Entry Bookkeeping. He has worked as an accountant and consultant for more than 25 years in all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a BSc from Loughborough University.