Liability refers to debts or obligations that a person or company owes to someone else. In financial accounting, a liability is defined as the future sacrifices of economic benefits that the entity is obliged to make to other entities as a result of past transactions or other past events). A liability can be as simple as an I.O.U. to a friend or as big as a multibillion-dollar loan to purchase a company. Liability can also refer to the legal liability of a business or individual, such as liability insurance in case a customer or employee sues them for negligence.
Liabilities can be short-term or long-term, depending on when they are due. Current liabilities are a companys short-term financial obligations that are due within one year or a normal operating cycle, while long-term liabilities are due beyond one year. Examples of liabilities include car payments, rent, credit card bills, long-term loans for funding operations, money a company owes to vendors or suppliers, and leases on warehouse space.
In summary, liability is a debt or obligation that a person or company owes to someone else, and it can be short-term or long-term.
