Sub: Accounting Topic:
Sources of the firm in a balance sheet
The balance sheet consists of assets and liabilities of any firm. The assets are called as the uses of thefirm and the liabilities are called as the sources of the firm.
Sources of the firm: (Debts or liabilities)
: The debts or liabilities are the claims of the outsidersagainst the assets of the firm. The liabilities refer to the amount payable by the firm to theclaimholders; i.e. the amount owed by the firm to other parties. For an obligation to be recognized asa liability, it must meet three requirements.i) Be expected to lead to a future cash outflow;ii) The firm cannot avoid the obligation andiii) The transaction giving rise to the obligation must have already happenedThe liabilities may be classified on the basis of payment commitments into long term liabilities andcurrent liabilities.The long term liabilities include the capital, reserves and the debts incurred by the firm, which arenot payable during a period of next one year. So the long term liabilities are those obligations of thefirm which are not to be discharged during the next one year. The long term liabilities may includethe bonds and debenture, mortgaged loans, loans from financial institutions etc. The long termliabilities thus, represent the long term borrowings of the firm.The current liabilities, on the other hand, are those liabilities which the firm expects to pay within aperiod of one year. The current liabilities relate to the current assets of the firm in the sense that thecurrent liabilities are paid out of the realizations of current assets. The current liabilities (and current