Liabilities & Equity

Liabilities is a term which refers in a broader sense, to all the capital of the enterprise (own and foreign sources), in the narrower sense (e.g. in Anglo-Saxon countries) is a term used only for liabilities from which its assets are funded.

According to the owner of capital, which was inserted into the enterprise, we divide the liabilities:

• Equity
• Liabilities
• Other Liabilities - accruals - expenses and deferred income

This classification applies to both capital resources in establishing a business, and when increasing assets, and to finance its current needs.

The total size of the corporate capital depends primarily on:

• Size of the enterprise - the larger the enterprise, the more capital it requires
• Degree of technical maturity of the enterprise - the higher technical maturity, the higher the capital
• Rate of capital turnover - the faster turnover, the lower capital
• Sales organization (an enterprise with its own sales network requires more capital than an enterprise trading through a third party)

Use of the liabilities in practice: Liabilities are the right side of the balance equation. This balance of the enterprise is called the balance sheet.