Liability

An obligation to transfer economic benefits as a result of past transactions or events. Liabilities represent future sacrifices of assets or services that an entity is presently obligated to make, ranging from accounts payable to long-term debt commitments.

Imagine a retail company with various liabilities: $2 million in accounts payable to suppliers, $5 million in long-term building loans, $1 million in accrued employee benefits, and $500,000 in customer deposits. Each liability represents a specific obligation requiring different management approaches and payment timing.

Managing liabilities requires understanding payment terms, cash flow planning, and risk assessment. Organizations must balance financing needs with ability to meet obligations while maintaining appropriate financial leverage.