Capital | Drawing | Liabilities, Types Of liabilities

 Capital : Cash is required to run any business. No business is possible without cash. Thus, to start a business, the owner or entrepreneur initially has to invest cash in the business, which is called capital.


Drawing/ Capital withdrawal: The withdrawal of a certain amount of cash or goods from the business by the owner of the business for personal expenses or personal use is called capital withdrawal. This reduces the amount of capital in the business. The capital withdrawal account should be debited and the cash or goods should be credited.


Liabilities: If a business borrows money from another person or purchases goods on credit, the amount owed to repay the loan or pay the lender is called a liability.  A business organization creates liabilities when it purchases goods or services on credit, borrows cash from financial institutions, etc.

Types of Liabilities

1. Current liabilities or short-term liabilities: Loans taken from a financial institution for a period of less than one year or outstanding payments for purchasing goods or services on credit from an institution, outstanding payments for house rent, etc. are called current liabilities or short-term liabilities. Such as creditors, bills payable, outstanding expenses, short-term loans, income received in advance, etc.

2. Non- current liabilities or long-term liabilities: If you have borrowed cash for a long period of time, with an interest payment due annually, from relatives or financial institutions for a period of more than one year or for more than one year, it is called a long-term liability. Such as loans received from banks, proceeds from the sale of bonds, loans taken by pledging any physical property, etc.

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