What is a Liability?

A liability is the financial debt or financial obligations that come about because of normal business operations.

Liabilities are a natural part of any business operations and is the opposite of assets. They are settled over time by the transfer of services, goods or money.

In accounting, liabilities are recorded on the right side of the balance sheet.

They include:

• accounts payable

• loans

• mortgages

• accrued expenses

• deferred revenues

Although the term may have a negative connotation in everyday language, liabilities are in fact vital to a company. Liabilities are crucial for financing business operations, to help business expand with property, equipment or other tools.