Long-Term LiabilitiesExamples & Formula

Lisa Borga
Last Updated: January 13, 2022
Date Published: January 13, 2022

What are Long-Term Liabilities?

Long-term liabilities are liabilities that are not due within a year or within the normal operating cycle of the business.

When listing long-term debt, the current portion of this debt is listed separately to give a clearer view of a business’s current liquidity as well as the business’s ability to pay its current liabilities when they are due.

Long-term liabilities are also referred to as non-current liabilities or long-term debt.

Accrued Liability

Explanation of Long-Term Liabilities

Long-term liabilities are listed after the current liabilities on the balance sheet.

These make up the total liabilities.

Total liabilities = Long-Term Liabilities + Current Liabilities

This section includes accounts such as loans, debentures, deferred income tax, and bonds payable.

These liabilities are those that are not due within the next year or the operating cycle for the company if this is longer than a year.

The operating cycle of a company is the amount of time it takes a company to buy inventory, sell it, and then receive the cash from selling the goods.

Although there is an exception to the above options for determining long-term liabilities.

This can occur if a company intends to refinance current liabilities.

If a company does intend to refinance current liabilities and the refinancing has already begun, a company can then report its current liabilities as long-term liabilities.

This is possible because once the current liabilities are refinanced, they will not be paid within the year and, therefore, will be long-term liabilities.

Also, if a liability will be due soon but the company intends to use a long-term investment to pay for the debt, it is listed as a long-term liability.

Although, it is necessary for the long-term investment to have enough funds to pay for the debt.

Long-Term Liabilities – Examples

long term liabilities

There are many examples of long-term liabilities, and we will list a few here.

Bonds Payable

These are bonds the government still needs to repay the business.

Most businesses probably see bonds as investments.

However, since the government has not yet paid the money back to the business, it is recorded as a liability.

Long-Term Loans

Long-term loans or loans that will take 12 months or more to repay.

These loans typically have a large principal amount, and will accumulate interest that will need to be paid over the life of the loan.

One type of long-term loan is a mortgage.

Deferred Compensation

This refers to either products your business has sold or services it has supplied that have not yet been paid for and the business will be paid for these products or services at a later time that will be at least a year in the future.

Pension Liabilities

Pension liabilities accumulate when a business provides pension plans to their employees or matches the employees’ pensions.

Deferred Revenues

If your business is owed revenue that will not be paid within the year, it will be included in the deferred revenue account.

This could be revenue owed to you by other businesses or even revenue that is late due to a delay in processing.

However, if it will be more than a year before it is paid, it will be in this account.

There are several other types of long-term liabilities, such as deferred tax liabilities which can be due in future years.

There are also loans for cars, machinery, or land.

Any of these liabilities which are not paid within the next 12 months are long-term debt.

Any payments which are to be made on these liabilities within the current year are classified on the balance sheet as the current portion of long-term debt.

How Long-Term Liabilities are Used

unlimited liability

Long-term liabilities are useful for management analysis when they are using debt ratios.

When doing this analysis, the current part of a business’s long-term debt is separated because the business will need to use cash or other liquid assets to pay it.

Whereas long-term debt can be paid in various ways, such as through income from future investments, cash from debt the business is taking on, or from the business’s net operating income.

Debt ratios are used to compare liabilities to assets.

These ratios can also be adapted to only analyze the difference between total assets and long-term liabilities.

This is actually a different ratio called the long-term debt to assets ratio; comparing long-term debt to total equity can help show a business’s financial leverage and financing structure.

Comparing a business’s current liabilities to long-term debt can also give a better idea of the debt structure of a company.

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  1. UMass Lowell "Chapter 11: Long-term Liabilities " Page 1 . January 13, 2022

  2. Iowa State University "Understanding Net Worth" Pahe 1 . January 13, 2022

  3. Harper College "Revised Fall 2012 Page 1 of 27 CHAPTER 10 ACCOUNTING FOR LONG-TERM LIABILITIES" Chapter 10 . January 13, 2022