A liability is a financial obligation that a company or individual owes to another party. Liabilities may be in the form of a debt, such as a loan or credit card balance, or may be the result of a legal obligation, such as a lawsuit settlement.
Liabilities are typically classified as either current liabilities or long-term liabilities. Current liabilities are obligations that are due within one year or less, and include items such as accounts payable, short-term loans, and income taxes payable. Long-term liabilities are obligations that are due in more than one year, and include items such as long-term loans and bonds payable.
Liabilities are typically reported on a company’s balance sheet, along with its assets and equity. The balance sheet is a snapshot of a company’s financial position at a specific point in time, and provides information about the company’s financial stability and its ability to meet its short-term and long-term obligations.
It is important for companies and individuals to carefully manage their liabilities, as high levels of debt or other obligations can impact a company’s financial stability and creditworthiness. Liabilities can also have an impact on a company’s ability to access financing or to make strategic decisions, such as investing in new equipment or expanding its operations.