Liabilities

Liabilities are the debts or obligations a business owes to others.

Explanation:
Liabilities represent what a business must pay, whether in the short term or long term. They include:

• Current liabilities (due within a year): e.g., accounts payable, short-term loans
• Long-term liabilities: e.g., bonds payable, mortgage loans

Example:
If a company borrows $10,000 from a bank, it records a liability until that loan is paid back.

Importance:
Knowing liabilities is essential to assess a business’s financial health and risk.

Common Confusion:
Some confuse liabilities with expenses. Expenses reduce income, while liabilities are amounts owed.