What is Arrears?

If any payment or debt is not paid on its due date, it becomes arrears. There are lots of expenses and other payments  which are not paid on due date and these become payment in arrears. Payment made at the end of a period is also arrears.

We are explaining Arrears with two examples

1. Insurance premium in Arrears

For example, you pay your insurance premium after one month. If you did not paid three month insurance premium, it will be three month insurance premium in arrears.

2. Calls in Arrears

Suppose, you issue shares of $ 5,00,000 and out of this you have to get $ 1,00,000 in the form of final call. $ 20,000 is not obtained on its due date. That $ 20,000 will be calls in arrears. It is the asset of company and it must be deducted from called up capital for calculating net paid up capital which is shown in liability side of balance sheet. This call in arrears may be of directors, managers or other shareholders.