Liabilities refer to all of the company's obligations towards third parties. A liability is a demand obligation, i.e., the moment a debt becomes due, its settlement is demanded. That is why the most appropriate way to call it is Demand Liability.
A liability must meet the 4 requirements described below:
- A liability requires spending money in the future.
- A liability is result of a past transaction, and not a future one.
- A liability has to be measurable or reasonably estimable.
- A liability must have a balancing item in assets or expenses.
Brazilian Corporate Law establishes that the company's liabilities, the financing obtained for acquiring Permanent Assets, be classified as Current Liability, when they become due in the following year (forthcoming year). Long-term Liabilities, in turn, shall be classified as Current Liability if they have a greater maturity period. Hence, Liabilities must be divided into two groups:
