How To Calculate Total Liabilities: From Start to Finish

Drew Robertson

on May 30, 2025

With contribution from

Ritoban Mukherjee

QUICK SUMMARY

Total liabilities are vital to your company's overall financial health. But calculating them can be challenging, especially if you're not sure where to start. Discover how to calculate total liabilities and more in my guide below.

Key Takeaways

Total liabilities are debts that you owe to outsiders, both in the short-term and the long-term. This amount helps to determine your company's financial health and risk.

To find your total liabilities amount, you can either add together your current and long-term liability costs, or subtract your total assets from your owner's equity.

When calculating total liabilities, make sure to check for hidden costs, use accurate and relevant data, and consistently review your results to catch errors before they occur.

According to Thomas Fuller, “Debt is the worst poverty.” He may have meant personal debt, but this applies to businesses too. That's why it's so important to understand your total liabilities as the organization scales.

I'm speaking from experience here. As a financial controller, I've seen companies fold, get fined, or worse for messing up this calculation on their balance sheet.

You're probably familiar with big accounting scandals like Enron and WorldCom — those are clear cases of corporate fraud. But many startups and small businesses also get in trouble for making simple human errors that could be avoided with the right systems and accounting software in place.

So that’s what this article is about. A no-nonsense guide to helping you figure out the best way to calculate total liabilities. We’ll go over the formula, of course. But, I’ll also offer a detailed breakdown of the process and a list of mistakes you need to avoid.

What Are Total Liabilities?

Total liabilities are the total amount of money a company owes to outsiders like creditors, suppliers, and employees. This debt includes everything a business is required to pay, both now and in the future.

It’s one of the most important metrics for estimating a company’s financial health and a key indicator of financial risk. Depending on the timeline, there are two types of liabilities that you’ll likely encounter: current and long-term. Let’s look closer into each.

Current Liabilities

Current liabilities, also called short-term liabilities, are debts that need to be paid within a year or a typical business cycle. This typically includes things like:

Accounts payable
Short-term loans
Regular income taxes
Accrued expenses
Yearly rent

Long-Term Liabilities

Non-current liabilities, also called long-term liabilities, are debts that won't be paid off within a year or within a business cycle. Some examples include:

Long-term loans and mortgages
Bonds that are payable further down the line
Pension obligations
Retiree healthcare costs
Deferred pay

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Before You Calculate: Formula Breakdown

There are two main formulas for calculating total liabilities. No matter which formula you choose, the result should be the same—however, each approach has its benefits, depending on the available information and your analysis needs.

The most common formula for calculating total liabilities is:

Total Liabilities = Current Liabilities + Long-Term Liabilities

It simply adds up all short-term and long-term debts a company has to determine your total liabilities. This formula comes in handy when you've got a clear picture of a company's outstanding debts, including each individual item.

It also gives you a clear view of the company's overall debt structure. With it, you can quickly see the difference between short-term and long-term debts, which is necessary for evaluating a company's ability to pay its bills and stay afloat in the long term.

An alternative formula, which you may see floating around, is:

Total Liabilities = Total Assets - Owner's Equity

This formula is based on a fundamental accounting concept. It works by subtracting the shareholder’s equity from a company’s assets to get the total liabilities. Compared to the prior formula, this one is most useful when you only have a company's balance sheet and don't know the specifics of its debts.

You can use it to double-check liability calculations you already have, or when you're missing more detailed data. Either way, this method illustrates the relationship between assets, liabilities, and equity — the definition accountants focus on.

How To Calculate Total Liabilities

Understanding how to calculate total liabilities is a key aspect of assessing your financial health, whether you're managing a business or reviewing personal finances. Here’s how you can use the formula to determine current and outstanding obligations:

1. Determine Your Liabilities, Assets, and Equity Amounts

To figure out your total liabilities using the first formula, start by identifying all your financial obligations, both current and long-term. Gather accounting data from various sources like accounts payable systems, loan documents, payroll records, and lease agreements.

Author's Tip

Keep track of each obligation individually before adding them to your balance sheet. When you do make the move, clearly label and categorize each liability so you can report accurately.

2. Calculate Your Totals

Once you have all of your current and long-term liabilities in place, add them together.

For instance, if company A owes $50,000 in the short term and $150,000 in the long term, here’s how they’d use the formula to find their total liabilities:

$200,000 = $50,000 + $150,000

You can also use the accounting formula that subtracts your shareholder equity from the total company assets. This method should also give you the same result as adding up the liabilities directly.

For example, if company A instead has $500,000 in assets and $300,000 in owner's equity, their total liabilities would, again, be $200,000.

$200,000 = $500,000 - $300,000

While calculating this using mental math is fairly simple, I recommend using logistics accounting software throughout the entire process—from tracking and categorizing liabilities, to creating balance sheets and calculating financial ratios.

This way, you can easily catch unusual transactions, automatically categorize regular liabilities, and significantly reduce the risk of missing or misclassifying liabilities. If you're unsure of where to start, consider checking out our list for the best logistics accounting software:

1. Shipthis — Best for freight forwarders
2. Account-Trak — Best for freight tracking
3. Logestechs — Best for mobile access
4. Logistiqo — Best for European markets
5. Logisuite Financials — Best for Miami-based companies
6. Logi-Sys — Best for integrated solutions
7. OnAccount — Best for New Zealand businesses
8. Tyms — Best for real-time updates
9. FleetRunnr — Best for fleet management
10. Linbis — Best for small logistics firms

3. Review, Review, Review

After adding up your total liabilities, double-check your numbers to make sure they're accurate. Your audit should:

Look for math mistakes
Classify and re-classify liabilities as either short-term or long-term
Make sure all your obligations are accounted for

To help you streamline your review process, I created this check-list for you to use as you complete this step:

It’s also important to compare your liabilities to the accounting equation to ensure your numbers balance out. If they don't add up, it's a sign that something's off and needs to be looked into.

Also, pay attention to old liabilities, unresolved claims, liabilities without corresponding payments, and unusual payments at the end of the year that might suggest someone's trying to manipulate the numbers.

More Eyes = More Visibility

Verifying your numbers is key to getting your accounting right. Since many liabilities come from external sources, it’s a good idea to get confirmation from your creditors and other involved parties to make sure your numbers are correct. This is especially important if your internal controls are weak.

When To Calculate Total Liabilities

Most businesses redo their liability numbers every month to help keep their records on track and in line with accounting and tax rules. It's also a good way to get a fresh look at the company's numbers and position.

However, if a business has a ton of transactions or changing debts, it might need to crunch the numbers more often.

As a bare minimum, businesses should recheck liabilities at the end of each accounting period. For public companies, this means doing quarterly balance sheets that show their total liabilities. These are usually due at the end of March, June, September, and December if they're on a calendar-year schedule.

Doing annual calculations is also key for end-of-year financial reports and tax returns. In the end, how often a business checks its liabilities depends on its needs and what the rules say. Generally speaking, though, regular checks can help spot trends, keep everything in line, and inform decisions about managing debt and getting future finance.

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Mistakes To Avoid When Calculating Total Liabilities

When figuring out total liabilities, businesses often get caught in the same old traps. These common trappings can really hurt their reporting accuracy and future decisions. Mistakes can distort a company's financial position, leading to bad choices and compliance problems.

Over the years, I've noticed a pattern in the mistakes that most companies make when assessing their liabilities. Here are some common mistakes you should avoid:

1. Not Including Hidden Costs

There are business expenses that crop up during operations but aren't formally recorded. These costs can be tough to pin down since they don't always involve cash, yet they can make up a big chunk of a company's liabilities. If you ignore them, your liabilities will look lower than they really are, which can create a misleading picture of your financial situation and lead to cash flow issues down the line.

Solution: To steer clear of this problem, businesses need to use thorough accounting practices that cover all kinds of liabilities, including those that aren't obvious at first. This means regularly reviewing operations to spot potential hidden costs, like missed opportunities from how assets are used, inefficient resource allocation, and operational mistakes.

2. Giving It a Once-Over

Mistakes can sneak in when review processes are subpar. Think imbalances in internal accounts or misclassifying liabilities. Usually, it's because of poor time management, not enough resources, or misplaced priorities. If financial statements aren't thoroughly checked, errors can lead to inaccurate reporting. This can bring regulatory fines, hurt your reputation, and lead to bad business decisions.

Solution: Set up a multi-level review process where team members double-check calculations from different angles. Make it a habit to compare liabilities with budgeted figures and past balances when reviewing financial reports. This can help spot unusual changes in balance sheet accounts. Comparing different periods can also highlight unusual movements that might be errors in transaction records.

3. Relying on Old Data

Outdated information can throw off a company's financial picture in a big way. If you're using old data when fresher information is available, that's an error, not just a revised estimate. This can lead to poor decisions, bad planning, and trouble with regulatory agencies.

In the past several years, the SEC has repeatedly asked companies to be thorough with their financial statements in the U.S. Claims that past financials aren't relevant to current investment decisions have never had much sway with regulators.

Solution: Make sure you're working with the latest data available and that your information is updated on a regular basis. Create a data refresh schedule that syncs up with your liability calculation calendar, with procedures for feeding in new information as soon as it becomes available. Train your team on the importance of current data, so they can avoid the same mistake.

What’s Next?

Liabilities are a major part of your accounting equation. If you don't get them right, it can have serious consequences for your company's finances. The problem is, a lot of businesses don't put in the effort to get it right from the start.

But it's not rocket science. With some good accounting software and a clear review process, you can avoid a lot of potential headaches. Now that you understand what total liabilities are and how they're calculated on your balance sheet, you'll know exactly what to focus on and what to watch out for.

As a finance professional just starting out, you need all the guidance you can get. At The CFO Club, you'll find expert advice and insights from the top finance leaders in the tech industry. And the best part? It's free — just sign up for our newsletter.