What is a Liability?

A liability in accounting represents items which a business must pay for.  All liabilities of the business are shown on the balance sheet.

Examples of Liabilities

Example of liabilities include:

  • Trade creditors;
  • Bank loans and overdrafts;
  • Accruals;
  • Unpaid taxes such as VAT or PAYE.

How are Liabilities Classified?

In accounting liabilities generally fall into two categories Current Liabilities and Long Term Liabilities. Current liabilities are items which need to be paid within one year of the balance sheet date, for example trade creditors.  Long term liabilities are items items which need to be paid for more than one year after the balance sheet date, for example a 5 year bank loan or hire purchase agreement.

What is an Asset in Accounting?

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