Liability

In business and finance, a liability refers to an obligation or debt that a company owes to external parties, which can include individuals, other companies, or governmental entities. It represents a claim on the company’s assets and is a crucial aspect of the company’s financial structure. Liabilities are recorded on the balance sheet and are an essential component in evaluating a company’s financial health.

Types of liabilities:

1. Current liabilities: These are obligations that are expected to be settled within one year or within the company’s normal operating cycle.
2. Non-current liabilities: These are obligations that are not expected to be settled within one year or the company’s normal operating cycle. 

Liabilities are recorded on the balance sheet, under the headings of current liabilities and non-current liabilities, depending on their expected settlement date.

They affect a company’s equity and liquidity. For example, high levels of debt can result in higher interest expenses, which can impact profitability.