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Video instructions and help with filling out and completing Why Form 5495 Liabilities

Instructions and Help about Why Form 5495 Liabilities

- In this video you'll find out what liabilities mean in accounting. I'm going to explain the definition and take you through the common types of liability that are worth knowing about, with examples to make things clearer. (upbeat ) Hey viewers, I'm James, and welcome to Accounting Stuff, the channel that teaches you everything you need to know about accounting and bookkeeping. If you'd like to learn more about these topics then check out my Accounting Basics playlist up here. That will start you off with video number one. I put out new content every week on this channel so hit the subscribe button and ring the bell to be notified when the next video is out. Last week we discussed the meaning of assets in accounting. Link up here if you missed it. And in today's video we're going to talk about liabilities, the second pilar in the accounting equation. Assets are equal to liabilities plus equity. Liabilities can be broke down broadly into three categories, current liabilities, non-current liabilities, and contingent liabilities. We'll explore the meaning of all of these terms in this video. And, I don't know why but the word liabilities always makes them seem like a bad thing. Like, something we want to avoid. But that is not the case. Liabilities are just a normal part of business. They aren't anything to be afraid of. And I'm going to explain why right now. Hold on tight because you're about to hear the full accounting definition of liabilities, and it aint pretty. Liabilities are probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events. What the? I thought the assets definition was bad, but this is something else. Let's break it down and see if we can make any sense of it. Liabilities are probable future sacrifices of economic benefits. The word probable hints at uncertainty. When dealing with liabilities, we accountants often have to use our own judgment of situations to estimate future outcomes. This is especially the case with accruals, which I'll get into later in this video. Future sacrifices means that we're going to need to give up something in the future. And what are we gonna give up? Economic benefit, which relates to the things that have value, or more specifically, assets and services. And that doesn't only mean cash. This definition also says that liabilities are present obligations resulting from past transactions or events. So in order to recognize a liability, the transaction or event that is committing us to transferring assets or providing services must have happened already. Yikes, are you still there? I hope I haven't lost you yet. It's important to understand what liabilities are because they're a crucial part of normal business. A simpler way to think of liabilities is that they are a source of third party funding that a business uses to buy assets and fund operations. If we bring that accounting equation back up, then we can see that businesses have two broad financing options to choose ...

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