Accounting Principles II: Liability Defined

Liability Defined

A liability is an existing debt or obligation of a company. It is an amount owed to a third-party creditor that requires something of value, usually cash, to be transferred to the creditor to settle the debt. Most obligations are known amounts based on invoices and contracts; some liabilities are estimated because the value that changes hands is not fixed at the time of the initial transaction. Liabilities are reported in the balance sheet as current (short-term) or long-term, based on when they are due to be paid. Current liabilities are those obligations that will be paid within the next year.