What is a liability?
In business, a liability is something that a company owes. This can mean debt or another type of obligation such as taxes or wages.
It can also cover money paid to the company for work which hasn't yet been carried out. This is known as deferred revenue, as the company can't count it until they have done the work.
Where have you heard about liabilities?
Liability is an accounting term and it's used to talk about a company's financial performance. On a company's balance sheet, assets are the difference between equity (money in) and liabilities (money owed).
What you need to know about liabilities...
Liabilities are used by investors to compare companies. This isn't always straightforward as the way liabilities are recorded can vary.
There are two types of liability – current liabilities and long-term liabilities . Current liabilities are debts that need to be paid within a year – wages, for example. Longer-term liabilities are payable over more than 1 year.
Liability also means being legally responsible for something. In a limited liability company, owners are not usually personally responsible for the debts of the company.