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Notes Payable to Officers, Shareholders or Owners ( Non-current Liabilities ) Hello to everyone. Glad you could make it to my blog. Are you looking to shop for household goods online? Much faster. Often cheaper! Unique Online Shopping Mall - Shopper Favorites This is a continuing post concerning balance sheets. Notes payable to officers, shareholders or owners represent cash which the shareholders or owners have put into the business. For tax reasons, owners may increase their equity investment, beyond the initial company capitalization, by making loans to the business rather than by purchasing additional stock. Any return on investment to the owners can therefore be paid as tax deductible interest expense rather than as non-tax deductible dividends. When a business borrows from a financial institution, it is common for the officer loans to be subordinated or put on standby. The subordination agreement prohibits the officer from collecting his or her loan prior to the repayment of the institution's loan. When on standby, the loan will be considered as equity by the financial institution. Notice than notes receivable -- officer are considered a bad sign to lenders, while notes payable -- officer are considered to be reassuring. Contingent Liabilities are potential liabilities that are not listed on the balance sheet. They are listed in the footnotes because they may never become due and payable. Contingent liabilities include: Lawsuits Warranties Cross Guarantees If the company has been sued, but the litigation has not been initiated, there is no way of knowing whether or not the suit will result in a liability to the company. It will be listed in the footnotes because while not a real liability, it does represent a potential liability which may impair the ability of the company to meet future obligations. Alternatively, if the company guarantees a loan made by a third party to an affiliate, the liability is contingent because it will never become due as long as the affiliate remains healthy and meets its obligations. WOW. Another ear full but we're almost there. Tomorrow, a short post on Total Liabilities and Equity. See you all then. Suzie Posted: Friday 28th January 2005, 12:25 AM

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