A liability is something a person or company owes, usually a sum of money. Liabilities are settled over time through the transfer of economic benefits including money, goods, or services. The financial statements of a company include the amount owed to various parties. For example, there are two types of liabilities: short-term and long-term. Short-term liabilities are those that must be paid within a year. Non-current liabilities are those that must be paid over a longer period. For example, a company may owe money to its employees and customers. For a long-term liability, the money must be repaid over several years.
Personal liabilities and business obligations are different but have similar characteristics. Both personal and business liabilities have an element of risk. A person who owes a friend a favor may have a liability to pay that favor back. A business that owes money on a bond may be liable to pay back the money owed. A company’s debt may include credit card and loan balances. A liability entails the amount owed to creditors.
Long-term liabilities are those that don’t mature for more than 12 months. This category contains the company’s debts, which are generally the largest liabilities. A company might also have a large amount of long-term debt, which is called bonds payable. This type of liability is the largest and most expensive of the three. For example, a rare book seller might take out a $500,000 mortgage on a small commercial space.
Long-term debt is a liability that is due in more than 12 months. Some companies issue bonds, which are essentially loans from one party to another. These bonds fluctuate as the company issues and redeems them. This type of liability is often the largest. The amount owed is a product or service and varies from year to year. It is important to understand what each type of liability means to a company. A good tutorial on liabilities will help you identify the differences and make your business grow in the long-term.