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Liabilities |
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WIKI ANALYSIS| This article is part of WikiProject Definitions. Consider editing to improve it. View articles referencing this definition. |
A liability is an accounting term for anything of value a company or an individual owes. Liabilities can include financial liabilities usually debt or fixed goods which have yet to be delivered. Publicly-traded companies are required to list a summary of their assets and liabilities every quarter on their balance sheet, where accounting rules determine how liabilities are categorized and valued. The opposite of a liability is an asset - something of positive value, or something the company owns.
Types of Liabilities
From an accounting perspective, liabilities are divided into two broad categories:
Current Liabilities
Current liabilities are debts or obligations which are due within a year. Current liabilities are reported on the company's balance sheet and include Short-Term Debt, accrued liabilities and Accounts payable.
- Short-term bank loans: which are a form of short-term debt that the company takes out.
- Accounts payable: which is money owed to a company, for a good or service. This includes unpaid bills.
By the principle of prudence, current liabilities are reported in the balance sheet at their least favorable valuation.
Long-Term Liabilities
Long-term liabilities are liabilities that will not be paid off or are not due within a year. Long-term liabilities are also reported on the company's balance sheet and include items such as long-term bank loans and bonds issued by the company. They are generally subject to interest payments. Examples include: company cars, computers and investment in another company.
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