An obligation to pay. These include accounts payable, and bond and bank debt.

Liabilities are shown on the balance sheet.

Note that a liability is not necessarily an evil thing for a company. Technically it's just an asset that they have temporary control over but don't own. If it's a useful asset and if the cost of "borrowing" it is cheap, then a liability can be a positive thing.

One example: if a retailer sells a gift certificate, they have to show a liability for the value of the merchandise they will be obligated to hand over when the giftee shows up to redeem it; but in the meantime they already have the cash the gifter paid, and they can use it any way they want -- this liability is really an interest-free loan.

home  |  glossary  |  calculator  |  about us  |  books