Liabilities

Liabilities are what your organization owes to others or holds on behalf of others.

What you owe:

Vendor accounts payable (bills for goods and services)
Amounts payable on company credit cards
Payroll liabilities (withholdings, federal, state, and local payroll taxes owed; unemployment owed)
Accrued expenses (usually estimated rather than based on actual bills, for instance: accrued vacation pay or accrued interest)
The amount accessed from a bank line of credit
Short-term or long-term loans

What you hold on behalf of others:

Deferred revenue or refundable advances (funds paid to your organization in advance for services not yet delivered; your organization would be liable to return these funds if the service is not delivered, for example, play subscriptions or tuition for future classes)
Conditional contributions (funds given to your organization that you are entitled to only if the condition is met, such as a matching grant)

Liabilities are presented in declining order of their maturity. Short-term liabilities are those due within a year. Long-term liabilities are multi-year loans such as mortgages or other funds borrowed by the organization and payable over more than one year. Liabilities are a natural “credit balance” meaning that, in an accounting entry, a credit to a liability account will increase it. A negative number (debit balance) in the liabilities section of a balance sheet is not normal and should be questioned and explained.

What you might want to ask when looking at the liabilities balances:

Accounts Payable/Accrued Expenses

Are vendors being paid in a timely way?
Do we have enough cash to pay our bills?
Are we carrying balances on high-interest credit cards?
How long have we had these liabilities on the books?

Payroll Liabilities

Are we meeting our tax liabilities in a timely way?

Deferred Revenue/Refundable Advances

Are we recognizing revenues as they are earned? (This balance will decrease and income increase as services for which the deferred revenue was given are performed.)
Are we sure no restricted contributions are included as deferred revenue?

Conditional Contributions