10 On the Other Side Liabilities and Equity e said earlier that liabilities are what a company owes and that equity is its net worth. There's another only slightly different-way to look at this side of the balance sheet, which is that it shows how the assets were obtained. If a company borrows funds in any way, shape, or form to obtain an asset, the borrowing is going to show up on one or another of the liabilities lines. If its owners put money into the business (and of course, receive stock) to obtain an asset, that will be renected on one of the lines under owners' equity. This way of looking at this side of the balance sheet can be important to an entrepreneur. It gives you a picture of how your company is funded, which is critical to any future decisions about debt and equity. Funding a business with debt is usually more risky because of the legal responsibility to pay back the debt. Equity, on the other hand, requires giving u partial ownership in the business, if you are selling shares to anyone besides yourself. TYPES OF LIABILITIES But first things first, which on this side of the balance sheet means liabili- ties, the financial obligations a company owes to other entities. Liabilities are always divided into two main categories. Current liabilities are those that have to be paid off in lessthan a year. Long term liabilities are those that