A liability are any claims against the assets of a business or financial organization, they are the obligations that the business has for or against the external stakeholders of the business which may be the shareholders, creditors to the business, suppliers and even the lenders (Swart, 2004).
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A liability can also be defined as the legal obligations of an individual person or an organization and the obligation is derived from current or past actions of the person or organization that binds them to the external party legally. Liabilities therefore demands from compulsory transfer of assets or the demanded services at a future defined dates. Liabilities are majorly divided in to two that is current and long term liabilities (Tyson, 2009).
This is the future obligation that is payable within a duration of less than one financial period i.e. one year. They include: – accounts or trade payables, accrued rent and short term loans (Swart, 2004).
Pizza Piazza’s current liabilities include:- the monthly rent of the leased restaurant $3000 per month, 2 short term loans of $1500.00 credit card balance and $350 vendor balance.
This on the other hand are legal obligations or claims that are payable in the long run which may even range up to a period of from one year to ten years. They include:- owners equity which is the companies obligation to its owners and long term loans (Custard, 1996).
Pizza Piazza’s long term liability includes:- the long term bank loan of $50000
These are the economic resources that are owned by any form of business entity. They are generally of the use of value addition to the entity through the creation of more resources. They do this also by adding to the net worth of the entity that owns them (Hysell, 2007). They can be classified variedly as either current or fixed, liquid or illiquid or tangible and intangible assets. Assets include cash and receivables, Land and buildings and also equipment.
They are also called short-term assets and they can be converted into cash or an exchange done against them within one financial period that is a year. These types of assets are highly liquid and change form often from one to the other. They include cash and cash equivalents, receivables, prepayments and short-term investments (Swart, 2004).
Pizza Piazzas Current Assets are as follows: – the inventory that it maintains to produce Pizza as well as start-up cash.
These on the other hand are called capital or long-term assets. They include all forms of property, plant and equipment that are owned by the entity. They are illiquid and therefore don’t change form that easily (Custard, 1996). It’s the long-term assets that are used to run the day to day operations of a business to create more wealth to the owners. Fixed asset include:- land, buildings, machinery and even vehicles.
Pizza Piazzas fixed assets entails among others; the kitchen equipment and the three delivery vehicles.
The cash flow of Pizza Piazza would contain cash from the sales of pizza and other menu items as the operating activities. Cash outflows would result from monthly expenditure like rent, insurance and community expenditure, fuel for the vehicles and loan payments.
Custard, E. T. (1996). The complete book of colleges. Princeton: Princeton Books.
Hysell, S. G. (2007). American reference books annual. Houston: Adventures Works Press.
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Swart, N. (2004). Personal Financial Management. New York: New York Book Stores.
Tyson, E. (2009). Personal Finance for Dummies. Chicago: Chcago Printing Press.