Liability

Much Obliged

What is a liability?

It is something you owe.

It is money or debt that is due to someone else. Liabilities are an obligation by law to pay another party for what you owe.

Both a company and an individual can have liabilities.

Assets Table

Liabilities Table

These are amounts you owe to banks, creditors, or people and institutions that lend you money.

Personal liabilities can include:

  • Mortgages
  • Leases
  • Car loans
  • Educational loans
  • Credit card debt

Personal balance sheet

A personal balance sheet calculates your net worth based on what you own (your assets) and what you owe (your liabilities).

Business liabilities

This is money that a company owes its creditors and any other claims it has against its assets.

These include:

  • Money
  • Service
  • Product
  • Salaries
  • Interest
  • Accounts payable

Calculator: Who wants to be a millionaire?


Company’s Balance Sheet.

They are also part of the accounting equation in a company’s balance sheet:

Assets = Liabilities + Stockholders’ Equity

Although they are often viewed as a right to the company’s resources, liabilities can also be thought of as a source of a company’s revenue.

Why are they important?

Liabilities are a crucial part of every business because they are used to grow the business and help pay for expansion.

Fun facts:

  • In an LLC, or Limited Liability Company, the owners are protected from personal liability for business debts and claims—a feature known as “limited liability,” which means that if the business owes money or faces a lawsuit creditors can’t come after the personal assets of the partners of the LLC.

 

References

  1. http://www.investopedia.com/terms/l/liability.asp
  2. http://study.com/cimages/multimages/16/personal_balance_sheet.jpg
  3. http://www.nolo.com/legal-encyclopedia/limited-liability-company-llc-faq-29144.html

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