Courses : Intermediate Macroeconomics Lecturer : Frischa Adellia Semester : 4th Semester, 2022/2023 Sesion DEFINITIONS OF LIABILITIES Liabilities in accounting refer to financial obligations or debts that must be paid by a company or entity within a certain period of time in the future. Liabilities consist of two types, namely short-term liabilities and long-term liabilities. 1. Short-term liabilities Short-term liabilities are financial obligations or debts that must be paid by the company in less than one year. Some examples of short term liabilities are: o Trade payables: Payables that must be paid by the company to suppliers or vendors due to the purchase of goods or services in the production process or daily operations. o Bank debt: Debt that must be paid to the bank in the form of a loan or credit that has been received by the company. o Taxes payable: Obligations for paying taxes by companies that have not been or are being paid at the time the balance sheet is prepared. o Salaries and wages payable: Obligations to pay salaries and wages of company employees for a certain period. o Other payables: Payables incurred as a result of other transactions, such as services, leases, or utilities. 2. Long Term Liabilities Long-term liabilities are financial obligations or debts that must be paid by the company within a period of more than one year. Some examples of long term liabilities are: o Bonds: Debentures issued by companies with maturities of more than one year. o Long-term loans: Loans received by companies from banks or other parties for a period of more than one year. o Long-term lease: Lease payment obligations from the company on long-term lease contracts such as buildings, vehicles or office equipment. Liability management is very important in the company's financial management because it can affect the company's ability to pay debts and obtain funds. In addition, too many financial obligations can reduce company profits and reduce the company's ability to develop and generate profits. Therefore, companies must manage their liabilities carefully and take into account the risks and potential returns in the short and long term. Companies must also pay attention to applicable accounting regulations in managing liabilities. Several accounting regulations related to liabilities include: 1. Estimated Liabilities: If a company has a liability that is uncertain, but can be estimated, then the company must make an estimate of the amount of the liability and record it in the financial statements. 2. Deferred tax liability: If a company has a tax debt that must be paid in the future, then the company should record it as a deferred tax liability. 3. Employee benefits liability: If a company provides employee benefits in the form of a pension or health insurance, then the company must make an estimate of the amount to be paid in the future and record it as an employee benefits liability. 4. Contingent liabilities: If the company has the possibility of having to pay compensation or other costs due to an uncertain event, the company must estimate the amount of these costs and record them as a contingent liability. In maintaining the company's financial health, management must be able to manage liabilities properly. Some strategies that can be done include: 1. Planning and managing cash: Planning and managing cash well can help a company to pay its financial obligations on time. 2. Reducing liabilities: Companies can reduce liabilities by reducing expenses or finding new sources of income. 3. Using the right loan: Companies must choose the right type of loan and with competitive interest rates to reduce the cost of debt. 4. Resetting debt terms: Companies can rearrange debt terms to extend payment terms and reduce short-term debt burdens. 5. Restructuring: The company may restructure to change the terms of the debt or reduce the size of the debt. Good liability management can help a company strengthen its position in the market, gain investor confidence and increase profits. Therefore, company management must always pay attention to the company's financial health and manage liabilities properly. In addition to the above strategies, there are also several financial ratios that can be used to evaluate a company's financial health related to liability management, namely: 1. Debt to Equity Ratio (Debt to Equity Ratio): This ratio measures how much a company's debt is compared to its equity. The higher this ratio, the greater the risk of bankruptcy for the company. 2. Debt to Total Assets Ratio: This ratio measures how much a company's debt is compared to its total assets. The higher this ratio, the greater the risk of bankruptcy for the company. 3. Loan to Value Ratio (Loan to Value Ratio): This ratio measures how much the loan amount provided by the company is compared to the collateral value provided by the borrower. The higher this ratio, the greater the risk of default of the borrower. 4. Interest to Gross Profit Ratio (Interest Coverage Ratio): This ratio measures how much a company's earnings before interest and taxes are compared to the amount of interest the company has to pay. The higher this ratio, the stronger the company's ability to pay interest. Good liability management is not only important for companies, but also for stakeholders such as creditors, investors and the government. By carrying out good liability management, the company can minimize bankruptcy risk, increase stakeholder trust, and strengthen its position in the market.