Liabilities in accounting refer to a companys financial obligations or debts that it owes to others. They are recorded on the right side of the balance sheet and can include loans, accounts payable, mortgages, deferred revenues, bonds, warranties, and accrued expenses. Liabilities can be categorized as current or non-current depending on their temporality. Current liabilities are those that are due within one year or a normal operating cycle, while non-current liabilities are those that are due after one year.
Examples of liabilities include bank loans, overdrafts, outstanding credit card balances, money owed to suppliers, interest payable, rent, wages and taxes owed, and pre-sold goods and services. Liabilities are a vital aspect of a company because they are used to finance operations and pay for large expansions. However, liabilities decrease a businesss value and equity, and keeping them low helps preserve the book value of the business. Business owners and members of a companys financial team are responsible for understanding what liabilities their company has and how they affect the company as a whole.
