On today’s entry of Devine Dictionary, we are going to discuss liability. What is a liability? What does a liability look like for your business? We are going to discuss what that means and what it looks like in the accounting world.
A liability is a monetary amount that is owed by the company to another entity, company, or individual. Some of these items may include bills, credit cards, loans, etc. When you look at a balance sheet you see two different types of liabilities, current and long-term. The difference between current and long-term are the time frame that those payments need to be made. Current liabilities are more short-term items like credit cards and bills that need to be paid. Long-term liabilities are just that, items that are owed over an extended period like loans.
Liabilities are a key part of the balance sheet and essential when you are trying to better understand the financial well-being of your business. (To learn more about balance sheets checkout our balance sheet blog here!) When you look at the liabilities and assets together you are able to have a nice snapshot of how your business is doing.
We hope that this has helped you better understand what a liability is in regards to your business accounting.