Short definition: A liability is a financial obligation or debt owed by a company, individual, or other entity to another party.
Explanation: Liabilities represent claims against a company’s assets and are listed on the balance sheet. They can be current (due within one year) or non-current (due after one year). Current liabilities might include accounts payable (money owed to suppliers), short-term loans, and accrued expenses. Non-current liabilities might include long-term loans, bonds payable, and deferred tax liabilities.
Example: A company’s liabilities might include a mortgage on a building, loans from banks, unpaid bills to suppliers, or taxes owed to the government.
Additional information (optional): Liabilities are an important component of a company’s financial structure. The amount and types of liabilities a company has can affect its creditworthiness and ability to raise capital.