Liabilities – that’s an accounting speak for your handmade business term used by CPA’s, tax professionals, and business advisors for money that you owe or will owe to others. That’s why Liabilities are the second section of your Chart of Accounts.
Liabilities are divided into two categories:
When it comes to bookkeeping, accounting, taxes, and the IRS – nothing is ever quite as straightforward as one might think it should be, which often gives small business owner a major headache.
The two categories are:
- Current Liabilities – things that will be paid off in a year.
- Long Term Liabilities – things that will take more than a year to pay off.
What are Liabilities in a handmade business and how are they numbered?
If you read the blog post Chart of Accounts-Accounting Speak Your Handmade Business, you’ll remember that I said Liabilities are numbered between 20000 and 29999 – but there are definite numbering splits as well and they can be confusing.
Current Liabilities are things that you will pay off withing a year, they are numbered between 20000 and 24999 and include:
- 20000 – 20999 Accounts Payable
- 21000 – 23999 Credit Cards Payable
- 24000 – 24999 Other Current Liabilities – such as Sales Tax Payable, Income Taxes Payable, Payroll Taxes, and the current years portion of any *long term debt*.
*NOTE: Talk to your CPA or tax preparer about how this is handled.
Long Term Liabilities are things that it will take more than a year to pay off, they are numbered between 25000 and 29999 and include:
- Loans that will last 2 or more years
That’s it for this week, I don’t want to give you a huge headache! 🙄 If you are working on a Chart of Accounts for your own handmade business, make a list of the things that you owe.
Next week, we’ll talk about Equity and what that means in your handmade business.
Until then, Happy Handmade!