Liabilities refer to the financial obligations of a business. These are established over time during the transfer of financial profit including money, goods or services. These denote the amounts which a business owes to others, e.g., loans from banks or other persons, creditors for goods supplied, bills payable, outstanding expenses, bank overdraft etc. Liabilities also consist of amounts received in advance for a future sale or for a future service to be performed.
A liability is a responsibility and it is reported on a company’s balance sheet. A familiar example of a liability is accounts payable. Accounts payable begin when a company purchases goods or services on credit from a supplier. When the company pays the supplier, the company’s accounts payable is reduced.
