Having discussed assets, we can now move on to the second component on the balance sheet, liabilities. In Kellogg's case, we find liabilities on the right-hand side of the balance sheet at $12 billion. What does that mean? What are the components making up the liabilities, what the company owes to its lenders. So a more detailed view of these liabilities is given here. And as before with the assets, we distinguish short-term from long-term. So we distinguish current liabilities from non-current liabilities. And we'll take a closer look at what distinguishes these two categories, and what kind of line items you might find under either. So liabilities, first, summarise what the company owes to its lenders. In the example I gave you before, you've started your business of delivery. The van that you bought to deliver the goods was financed partly by bank loan. That would be your liability. Some of those liabilities are short-term, so this bank loan might in all likelihood be a loan that needs to be repaid fairly quickly. That could make it a current liability, but in all likelihood the bank will grant you a little bit more than just a one year loan, which is the typical definition of current liabilities. Which means that only part of what you have to repay on the loan will be classified as a current liability. The part that needs to be repaid in the next year. So current liabilities includes things like accounts payable. Kellogg's would have bought the raw materials from the farmers. It might have paid in advance, but, just as Kellogg's grants credit to its customers, Kellogg's itself might also have been granted a period during which it would have been given credit by the providers, the farmers of the raw materials. That's classified as accounts payable, but they need to be paid for. And usually they need to be paid for in a relatively short period of time, say 90 days. Then there is short-term debt. Consider the example that I've just given you, a bank loan, a bank loan where part of the repayment on that loan would have to occur within the next year. And in addition, there's a whole set of short-term, next year obligations of repayments on longer term debt, on longer term loans. So invoices, accounts payable would be part of the current liabilities. Bank loans, the repayments that you will have to make in the next year, would be part of those current liabilities as well. Other liabilities are classified as long-term. The bank loan that you got for the van would probably have to be repaid over a period of say five to ten years. That would make a large component of that loan a non-current liability. Bonds issued by Kellogg's to finance its major operations would also be classified as long-term debt. We'll get into quite some detail once we start discussing the financial markets and what exactly distinguishes long-term debt from short-term debt. A very important component for corporations nowadays of course is the pension liability, which is truly a long-term obligation. Only part of that would have to be repaid within the next year. The employees that retire within that year would have their pensions being paid out. But the vast majority of the employees would be entitled to payments further down the track over time, which makes it a long-term liability. So bonds is just one example. But as I've just gone through the list, there are quite a few obligations that the corporation has to repay its loans, to repay its debts over time.
