Liabilities are claimed against the companys assets. As with assets, these claims record as current or noncurrent.

Usually, they consist of money the company owes to others. For example, the debt can be to an unrelated third party, such as a bank, or to employees for wages earned but not yet paid. Some examples are accounts payable, payroll liabilities, and notes payable.

Presenting both assets and liabilities as current and noncurrent is essential for the user of the financial statements to perform ratio analysis. Current liabilities on the balance sheet

Current liabilities are ones the company expects to settle within 12 months of the date on the balance sheet. Settlement comes either from the use of current assets such as cash on hand or from the current sale of inventory. Settlement can also come from swapping out one current liability for another.

At present, most liabilities show up on the balance sheet at historic cost rather than fair value. And theres no GAAP requirement for the order in which they show up on the balance sheet, as long as they are properly classified as current.

The big-dog current liabilities, which youre more than likely familiar with from previous accounting classes, are accounts payable, notes payable, and unearned income. Keep in mind that any money a company owes its employees (wages payable) or the government for payroll taxes (taxes payable) is a current liability, too.

Heres a brief description of each:

Short-term notes payable: Notes due in full less than 12 months after the balance sheet date are short term. For example, a business may need a brief influx of cash to pay mandatory expenses such as payroll. A good example of this situation is a working capital loan, which a bank makes with the expectation that the loan will be paid back from collection of accounts receivable or the sale of inventory.

Accounts payable: This account shows the amount of money the company owes to its vendors.

Dividends payable: Payments due to shareholders of record after the date declaring the dividend.

Payroll liabilities: Most companies accrue payroll and related payroll taxes, which means the company owes them but has not yet paid them.

Current portion of long-term notes payable: If a short-term note has to be paid back within 12 month of the balance sheet date, youve probably guessed that a long-term note is paid back after that 12month period. However, you have to show the current portion (that which will be paid back in the current operating period) as a current liability.

Unearned revenue: This category includes money the company collects from customers that it hasnt yet earned by doing the complete job for the customers but that it anticipates earning within 12 months of the date of the balance sheet.

Noncurrent liabilities on the balance sheet

Noncurrent or long-term liabilities are ones the company reckons arent going anywhere soon! In other words, the company doesnt expect to be liquidating them within 12 months of the balance sheet date.

Bonds payable: Long-term lending agreements between borrowers and lenders. For a business, its another way to raise money besides selling stock.

Long-term leases: Capital leases (you record the rental arrangement on the balance sheet as an asset rather than the income statement as an expense) that extend past 12 months of the date of the balance sheet. Because the rental arrangement is recorded as an asset, the related lease obligation must be recorded as a liability.

Product warranties: Report as noncurrent when the company expects to make good on repairing or replacing goods sold to customers and the obligation extends beyond 12 months from the balance sheet date

Computation of Income Tax Due and Payable

The following are simple steps to calculate your income tax payable.

1. Compute your taxable Compensation Income (positive) or excess of Deductions over Taxable Compensation Income (negative). Here is how you will compute it.

a. Determine your Gross Taxable Compensation Income. This is the income you earn from your employer during the taxable year. If you are earning purely from your business or you are not employed, then you can leave it blank. b. Determine your premium paid on Health and or Hospitalization, which should not exceed Php 2,400 per year. If none, then leave it blank. * c. Determine your Personal and Additional Exemptions as follows:

Personal Exemptions:

For single individual or married individual judicially decreed as legally separated with no qualified dependentsP 50,000.00 For head of familyP 50,000.00 For each married individual *P 50,000.00

Note: In case of married individuals where only one of the spouses is deriving gross income, only such spouse will be allowed to claim the personal exemption.

Additional Exemptions:

* For each qualified dependent, a P25,000 additional exemption can be claimed but only up to 4 qualified dependents

The additional exemption can be claimed by the following: * The husband who is deemed the head of the family unless he explicitly waives his right in favor of his wife * The spouse who has custody of the child or children in case of legally separated spouses. Provided, that the total amount of additional exemptions that may be claimed by both shall not exceed the maximum additional exemptions allowed by the Tax Code. * The individuals considered as Head of the Family supporting a qualified dependent

d. Add the amounts in (b) and (c), then deduct the total from the amount in (a) to arrive at your taxable Compensation Income (positive) or excess of Deductions over Taxable Compensation Income (negative).

2. Compute your gross taxable business or professional income. Here is how you will calculate it.

a. Determine your sales, receipts or revenues for the taxable year. b. Determine your cost of sales or cost of services. c. (a) minus (b) will simply give you your gross taxable or professional income.

3. Compute your total taxable business or professional income by simply adding result in (2) and your other taxable income.

4. Compute your Net Income. Your Net Income is equal to result in (3) minus your allowable deductions. Your allowable deductions can be either:

a) Optional Standard Deduction an amount not exceeding 40% of the net sales for individuals and gross income for corporations; or

b) Itemized Deductions which include the following:

Expenses Interest Taxes Losses Bad Debts Depreciation Depletion of Oil and Gas Wells and Mines Charitable Contributions and Other Contributions Research and Development Pension Trusts

Note: A taxpayer engaged in business or in the practice of profession shall choose either the optional or itemized deduction (described below). He shall indicate his choice by marking with X the appropriate box, otherwise, he shall be deemed to have chosen itemized deduction. The choice made in the return is irrevocable for the taxable year covered.

Reminder: There are expenses that have ceilings or limits as deductibles to your taxable income, such as interest expense, representation and entertainment expense, etc. To learn more, please read our article Deductible Expenses (Allowable Deductions) in the Philippines.

5. Compute you total taxable income by adding the result in #4 (Net Income) to the result in #1 (taxable Compensation Income or excess of Deductions over Taxable Compensation Income). If the result is negative or it becomes a loss, then you will not have a tax due for the taxable year, otherwise, continue to the next step.

6. Compute your Income Tax Due. This is also your income tax expense incurred during the taxable year. Calculate your tax due for the taxable year using the following tax rate table.

Income tax rates for self-employed taxpayers

Note: When the tax due exceeds P2,000.00, the taxpayer may elect to pay in two equal installments, the first installment to be paid at the time the return is filed and the second installment 15 of the same year at on or before July the Authorized Agent Bank (AAB) within the jurisdiction of the Revenue District Office (RDO) where the taxpayer is registered.

7. Compute your Income Tax Payable. This is the tax you are still liable at the end of the year. To calculate your income tax payable, deduct your income tax due with the following tax credit/payments, if available.

-Prior Years Excess Credits -Tax Payments for the First Three Quarters -Creditable Tax Withheld for the First Three Quarters -Creditable Tax Withheld Per BIR Form No. 2307 for the 4th Qtr. -Tax Withheld Per BIR Form No. 2316 -Foreign Tax Credits -Tax Paid in Return Previously Filed, if you have already file and this is your Amended Return -Other Payments made

8. Compute your Total Payable. If unfortunately, you fail to pay your income tax on or before the due date, the following penalties will be imposed and will be added to your total amount payable.

1. A surcharge of twenty five percent (25%) for each of the following violations: a) Failure to file any return and pay the amount of tax or installment due on or before the due dates; b) Filing a return with a person or office other than those with whom it is required to be filed; c) Failure to pay the full or part of the amount of tax shown on the return, or the full amount of tax due for which no return is required to be filed, on or before the due date;

d) Failure to pay the deficiency tax within the time prescribed for its payment in the notice of Assessment (Delinquency Surcharge).

2. A surcharge of fifty percent (50%) of the tax or of the deficiency tax, in case any payment has been made on the basis of such return before the discovery of the falsity or fraud, for each of the following violations: a) Willful neglect to file the return within the period prescribed by the Code or by rules and regulations; or b) In case a false or fraudulent return is willfully made.

3. Interest at the rate of twenty percent (20%) per annum, or such higher rate as may be prescribed by rules and regulations, on any unpaid amount of tax, from the date prescribed for the payment.

A simple illustration of computing total income tax payable is shown below:

Gross Income (Gross business income, compensation income and other income) Less: Allowable Deductions (Itemized or Optional) (refer to # 4) Equals: Net Income Less: Personal & Additional Exemptions (see #1) Equals: Net Taxable Income Multiply by Tax Rate (5 to 32%) (refer to # 6) Equals: Income Tax Due Less: Tax credits & payments (refer to #7) Equals: Income tax payable Add: Penalties (Surcharge, interests & compromise) (refer to #8) Equals: Total amount payable