What is liability?
Liability in finance has long been an important aspect to consider when managing money. It essentially refers to that which an individual or business owes, such as debt
and unpaid bills. Liability involves a legal obligation on the part of a party to provide specific services or make payment for goods that are supplied.
Types of Liability
Liabilities are defined as current obligations or debts of a company. They range from current liabilities such as short-term loans, accounts payable, and current taxes, to long-term liabilities such as mortgage payments and bonds. Contingent liabilities are the potential obligations that a company must fulfill based on outcomes that are uncertain or outside of its control. It is important for businesses to understand each of these types of liabilities so they know how to best manage them.
Asset vs Liability
An asset is any form of possession that holds value, such as money, property, or investments; whereas a liability generally indicates a financial obligation or debt - something which detracts from one's total worth or net worth. Assets can provide returns or increase in value over time, whereas liabilities usually require fixed payments over a certain period.