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What is a Capital Liability?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 01 November 2016
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    Conjecture Corporation
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Capital liabilities are defined as a range of obligations that are utilized to buy one or more fixed assets or as a means of funding a particular operational or investment project. The concept of a capital liability is applicable to both businesses and individuals, and can cover a wide range of debts. Generally, a capital liability is classified either as debts that are considered short-term or long-term.

One of the expressions of a capital liability is utilization with financing a business operation. The liability may be used to fund a specific project, such as an expansion strategy or a marketing campaign to launch a new product. A capital liability may also be resources that are used to acquire additional fixed assets that will be used in the general operation of the business, such as production equipment, office furniture, and other essentials. One other expression of a capital liability has to do with any debts that are incurred in the normal process of operating the business, such as mortgages on buildings, equipment, or the cost of employing outside services to complete the production cycle.

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Recording a capital liability within the company financial records is usually shown as a debit item on the balance sheet. Normally, each capital liability is listed separately on the sheet, making it possible to monitor the current status of each liability from one period to the next. While it is expected that some types of capital liability will remain stable from one month the next, such as recurring services that are funded on a monthly basis, there is also some expectation that other capital liabilities will show a definite increase or decrease with each new period.

It is also common for each capital liability to be identified as a short-term or long-term liability. A short-term capital liability is defined as a line item that is expected to be paid in full within a calendar year. Long-term liabilities are any capital liability that will not be paid in full for at least a minimum of one year.

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