Liability
From LawGuru Wiki
In the most general sense, a liability is anything that is a hindrance, or puts one at a disadvantage.
Contents |
In accounting
In accounting, a financial liability is something that is owed to another party. This is typically contrasted with an asset which is something of value that you own. It is said, "assets put cash in your pocket, liabilities take cash out of your pocket." The basic accounting equation relates assets, liability, and capital (or equity) thus:
liabilities + equity = assets
where assets are what you own, liabilities are what you owe to others, and equity is what you have contributed to the venture.
In technical terms, liabilities are: The future sacrifice of economic benefits that the entity is presently obliged to make to other entities as a result of past transactions and other past events. (Statements of Accounting Concepts, AARF, 1997). Regulations as to the recognition of liabilities are different all over the world, but are roughly similar to those of the International Accounting Standards Board(IASB)link title.
Examples of types of liabilities include: money owing on a loan, money owing on a mortgage, or an IOU.
Clasification of liabilities
Liabilities are reported on a balance sheet and are usually divided into 2 categories:
- Current liabilities - these liabilities are reasonably expected to be liquidated within a year. They usually include payables (wages, accounts, taxes, etc, payables), unearned revenue (see adjusting entries), portions of long-term bonds to be paid this year, short-term obligations (e.g. from purchase of equipment), and others.
- Long-term liabilities - these liabilities are reasonably expected not to be liquidated within a year. They usually include issued long-term bonds, notes payables, long-term leases, pension obligations, long-term product warranties, etc.
In law
- In law a legal liability is a term used to describe situations in which a person is liable, for, say, damage to property or reputation and is therefore responsible to pay compensation for any damage incurred; liability may be civil or criminal.
- In commercial law, limited liability is a form of business ownership in which business owners are legally responsible for no more than the amount that they have contributed to a venture. If for example, a business goes bankrupt an owner with limited liability will not lose unrelated assets such as a personal residence (assuming they do not give personal guarantees). This is the standard model for larger businesses, in which a shareholder will only lose the amount invested (in the form of stock value decreasing). For an explanation see business entity.
- Manufacturer's liability is a legal concept in most countries that reflects the fact that producers have a responsibility not to sell a defective product
An example (from both accounting and law)
Money that you have accumulated is an asset to you. It is something of value that you own. If you take your money to a bank and deposit it there, it becomes a liability to the bank (the bank owes you the money). The money is both an asset to you and a liability to the bank.
See also
- List of accounting topics
- List of business law topics
- Liability insurance
- Contingent LiabilitiesEs:pasivo
de:Passiva fr:Passif nl:Passiva pl:Pasywa ru:Пассив
