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What is a liability?
Financial debts
How are liabilities acquired?
Regular operations or unforseen circumstances
What is a current liability?
Has to be repaid within a year
What is a non-current liability?
Due after one year
What is limited liability?
The owners are only responsible for the debts up to the amount they have invested in the business
What is unlimited liability?
Owners are personally responsible for all business debts
What does unincorporated mean?
Owner and business are same legal entity
What type of liability do you have if your business is unincorporated?
Unlimited
What does incorporated mean?
Owner and business are separate legal entity
What type of liability do you have if your business is incorporated?
Limited
How can you measure a business’ liabilities?
Current ratio
What is the formula for current ratio?
current assets/current liabilities
What does the current ratio measure?
Company’s ability to meet short-term obligations
What happens if a company can’t meet its liabilities?
Forced into liquidation
What is liquidation?
Closing a business and selling its assets to pay debts
