What is a liability?

A liability is an obligation to pay a third party incurred by a business as part of its trading operations. For example, when a business buys goods from a supplier on credit, the business has a liability to the supplier to pay for the goods.

A liability is shown on the credit side of the balance sheet of a business and is part of the fundamental accounting equation.

Assets = Liabilities + Equity

Liabilities can be current liabilities or long term liabilities depending on whether they are due within twelve months of the balance sheet date.

Additional information on liabilities can be found in our liabilities tutorials.

For further information see the Wikipedia definition.

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Liability March 23rd, 2016Team

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