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Liability definition
A liability is a financial obligation that a person, business, or institution must repay or settle in the future. It covers debts such as loans, accounts payable, mortgages, and taxes owed.
Liabilities sit on a balance sheet and settle through cash payments, asset transfers, or delivered services. They split into current liabilities, due within one year, and non-current liabilities, due after one year.
Liabilities shape liquidity, solvency, and financial risk. A liability is the opposite of an asset: an asset is something owned that holds economic value, while a liability is something owed.
Liability Example
A company borrows USD 50,000 from a bank to buy equipment. That USD 50,000 loan is a liability, because the company has to repay it in the future.
If USD 10,000 falls due within the next 12 months, that portion is a current liability. The remaining USD 40,000, due after 12 months, is a non-current liability.
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