Liabilities (Accounting) - Explained
What are Liabilities?
Written by J. Mance Gordon
Updated at April 18th, 2024
- Marketing, Advertising, Sales & PR
- Accounting, Taxation, and Reporting
- Professionalism & Career Development
-
Law, Transactions, & Risk Management
Government, Legal System, Administrative Law, & Constitutional Law Legal Disputes - Civil & Criminal Law Agency Law HR, Employment, Labor, & Discrimination Business Entities, Corporate Governance & Ownership Business Transactions, Antitrust, & Securities Law Real Estate, Personal, & Intellectual Property Commercial Law: Contract, Payments, Security Interests, & Bankruptcy Consumer Protection Insurance & Risk Management Immigration Law Environmental Protection Law Inheritance, Estates, and Trusts
- Business Management & Operations
- Economics, Finance, & Analytics
What is a Liability?
Liabilities are the things that we owe to others relating to loans extensions of credit and other obligations arising from the course of business,
In the accounting equation, assets equals liabilities plus equity.
Examples of Liabilities
Some common examples of liabilities found on the balance sheet include:
- accounts payables,
- notes payables,
- salaries payables,
- Unearned revenue (you owe goods or services)
As a point of reference, payables are what we're expected to pay, receivables are what we're expected to receive. Ask yourself, "what are we expected to do with this cash?" If we're expected to pay it at another date, then it's a payable. If we're expected to receive it, then it's a receivable.
Unearned revenue is the product or service that we're expected to pay back later on. So, somebody gave us money up front. I still owe you a product or that service. That's what makes it an unearned revenue. Once I provide that good or service, the unearned revenue will convert to earned revenue, an asset.