A liability is a financial obligation or debt owed. It appears on the balance sheet alongside assets. Loans, unpaid bills, wages owed, and taxes due are all liabilities. They represent claims on the company's resources. The more liabilities, the more the company owes to others.

Liabilities come in two main categories. Current liabilities are due within a year: accounts payable, short-term loans, accrued expenses. Long-term liabilities extend beyond a year: mortgages, bonds, pension obligations. The split matters because it shows near-term cash demands. A company with heavy current liabilities and weak cash flow faces trouble.

For individuals, liabilities include credit card balances, student loans, mortgages, and car loans. Net worth is assets minus liabilities. Reducing liabilities is one path to building wealth. So is increasing assets. Both matter. Lenders and investors watch liability levels closely. High debt relative to income or assets signals risk. Low debt provides flexibility. Not all liabilities are bad. A mortgage lets a family buy a home. A business loan can fund growth. The question is whether the obligation can be serviced comfortably. If the answer is no, the liability becomes a burden.

Common types

• Accounts payable
• Short-term loans
• Long-term debt
• Mortgages
• Accrued expenses and taxes