What are Internal and External Liabilities

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Liabilities Are of Two Types EXTERNAL LIABILITIES INTERNAL LIABILITIES it is the liability towards Outside Parties it is the liability Towards Owners Example Loan form Father to start business Example Own Money invested to start business(Capital) Different Types of External Liabilities Current Liabilities Repayable within 12 months Example Short Term Loans Trade Payables Non-Current Liabilities Repayable after 12 months Example Long Term loans Debentures What Is A Capital? Capital is the money invested in Business by Owner It is a Liability for the business Why Is Capital A Liability? Loan from Father to Start Business it is a liability as we have to pay back this amount in future Capital from Owner to Start business Owner is Different from Business When Owner invest money into Business it is like loan from Owner to Business Owner is Different from Business When Owner invest money into Business it is like loan from Owner to Business Note- Loan from Father is External liability But Capital is internal Liability Are The Following Assets Or Liabilities? Cash Bank Bank Loan Car Car Loan Loan form Father to Start Business Own Money to Start Business (Capital) Asset Asset Asset Asset Asset Asset Liability Liability Liability Liability Liability Now Let's Study About Drawings Suppose I have invested Rs 200000 on 1st Apr, 2023 I have withdrawn Rs. 50000 during the year What is the capital at the end of the year? Amount Invested Less : Amount Withdrawn Capital at the end This amount is Drawings What Are Drawings ? If any Amount or Goods withdrawn by Owner from Business for personal use is called drawings It is reduced from capital