liability

Definition of liability

Pronunciation

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Noun

liability (plural liabilities)

1. the condition of being liable
2. an obligation, debt or responsibility owed to someone.
   
   * 1901, W. W. Jacobs, The Monkey's Paw
   "I was to say that Maw and Meggins disclaim all responsibility," continued the other. "They admit no liability at all, but in consideration of your son's services they wish to present you with a certain sum as compensation."
   
   

Antonyms

• asset

Further reading

A liability can mean something that is a hindrance or puts an individual or group at a disadvantage, or something that someone is responsible for, or something that increases the chance of something occurring (i.e. it is a cause).

Liability may also refer in specific fields to:

• legal liability
• public liability

Finance

• liability (financial accounting), a current obligation of an entity arising from past transactions or events
• contingent liability

Liability (financial accounting)

In financial accounting, a liability is defined as an obligation of an entity arising from past transactions or events, the settlement of which may result in the transfer or use of assets, provision of services or other yielding of economic benefits in the future. A liability is defined by the following characteristics:

• Any type of borrowing from persons or banks for improving a business or personal income that is payable during short or long time;
• A duty or responsibility to others that entails settlement by future transfer or use of assets, provision of services, or other transaction yielding an economic benefit, at a specified or determinable date, on occurrence of a specified event, or on demand;
• A duty or responsibility that obligates the entity to another, leaving it little or no discretion to avoid settlement; and,
• A transaction or event obligating the entity that has already occurred.

Liabilities in financial accounting need not be legally enforceable; but can be based on equitable obligations or constructive obligations. An equitable obligation is a duty based on ethical or moral considerations. A constructive obligation is an obligation that is implied by a set of circumstances in a particular situation, as opposed to a contractually based obligation.

The accounting equation relates assets, liabilities, and owner's equity:

Assets = Liabilities + Owner's Equity

The accounting equation is the mathematical structure of the balance sheet.

The Australian Accounting Research Foundation defines liabilities as: "future sacrifice of economic benefits that the entity is presently obliged to make to other entities as a result of past transactions and other past events."

Probably the most accepted accounting definition of liability is the one used by the International Accounting Standards Board (IASB). The following is a quotation from IFRS Framework:

A liability is a present obligation of the enterprise arising from past events, the settlement of which is expected to result in an outflow from the enterprise of resources embodying economic benefits
- F.49(b)

Regulations as to the recognition of liabilities are different all over the world, but are roughly similar to those of the IASB.

Examples of types of liabilities include: money owing on a loan, money owing on a mortgage, or an IOU.

Liabilities are debts and obligations of the business they represent creditors claim on business assests. Example of Liabilities All kinds of payable 1) Notes payable - a written promise. 2) Accounts Payable - an oral promise. 3) Interests Payable. 4) Sales Payable.