In business bookkeeping, liabilities are financial obligations to outside parties. The most common type of corporate and small business liability is monetary debt. Traditionally, liabilities are listed on the right-hand side of a company's [balance sheet](https://www.masterclass.com/articles/what-is-a-balance-sheet). The liabilities section may contain both current and non-current liabilities. On the left side of the balance sheet is an accounting of the company's current [assets](https://www.masterclass.com/articles/what-is-an-asset). Corporate investors consider company debt before investing in a company and typically ask for financial statements that show the current ratio of total assets to total liabilities.

Different types of liabilities factor into business accounting equations.

1. __Current liabilities__: Also known as short-term liabilities, current liabilities are debts that must be paid within a year's time. Examples of current liabilities include employee salaries, mortgage payments, rent payments, credit card debt, short-term loans, and sales taxes to be remitted.
2. __Long-term liabilities__: Also known as non-current liabilities, these refer to financial obligations for the next year and beyond. Examples include deferred tax liabilities, long-term interest payments, long-term loans, future bonds payable, pensions, and other forms of long-term debt.
3. __Contingent liabilities__: Some business owners and financial accounting professionals also list contingent liabilities on their general ledger. These are liabilities that could be owed in the future. These include refunds, lawsuit settlements, and fulfillment of product warranties.
Liabilities appear in all corners of a business's operations. 

1. __Payments to lenders are long-term liabilities__. There is an economic benefit in taking out business loans because they provide short-term liquidity. However, these loans must be reported as long-term liabilities on a balance sheet.
2. __Annual income taxes are short-term liabilities__. Income taxes are an annual affair. By definition, they count as short-term liabilities.
3. __Unearned revenue can be a liability__. If a company's <a href='https://masterclass.com/articles/how-to-read-and-understand-an-income-statement' target='_blank' class='mc-text--link' data-mc-segment-trigger='true' data-mc-segment-event-type='Article Page Click' data-event-obj='{"textTag":"p","href":"https://masterclass.com/articles/how-to-read-and-understand-an-income-statement","linkCopy":"income statement","category":"automated-link"}' automatic='true'>income statement</a> shows a deficit of anticipated revenue, this counts as a short-term liability. Companies budget for a certain level of annual cash flow, and when revenues do not meet expectations, they go to the right side of a balance sheet as a liability.
Accountants and accounting software use a couple of factors to distinguish between liabilities and expenses. 

- __An expense is a short-term cost of doing business__. For instance, if you were to operate a corporate bank account for accounts receivable and that account came with monthly fees, you would deduct those fees from your [gross profit](https://www.masterclass.com/articles/gross-profit-vs-net-income) to arrive at a net profit for the month. Operating costs (like office supplies) that the business pays back on a monthly basis are considered expenses and reported on income statements.
- __Liabilities are more removed from day-to-day cash flow__. Liabilities—like loans and other long-term debts—are not linked to short-term sales transactions. That said, some accrued expenses may end up as liabilities if they are paid over a long period of time. Liabilities are documented on a company’s balance sheet.
All investments and investment strategies entail inherent risks and introduce the potential for financial loss or the depreciation of assets. The information presented in this article is for educational, informational, and referential purposes only. Consult a professional investment advisor before making any financial commitments.

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In the world of business and accounting, a liability is a debt that your company owes.

In the world of business and accounting, a liability is a debt that your company owes.

Liabilities in Business Explained: 3 Types of Liabilities

In business bookkeeping, liabilities are financial obligations to outside parties. The most common type of corporate and small business liability is monetary debt. Traditionally, liabilities are listed on the right-hand side of a company&#39;s <a href='https://www.masterclass.com/articles/what-is-a-balance-sheet' target='_self' class='mc-text--link' data-mc-segment-trigger='true' data-mc-segment-event-type='Article Page Click' data-event-obj='{"textTag":"p","href":"https://www.masterclass.com/articles/what-is-a-balance-sheet","linkCopy":"balance sheet","category":null}'>balance sheet</a>. The liabilities section may contain both current and non-current liabilities. On the left side of the balance sheet is an accounting of the company&#39;s current <a href='https://www.masterclass.com/articles/what-is-an-asset' target='_self' class='mc-text--link' data-mc-segment-trigger='true' data-mc-segment-event-type='Article Page Click' data-event-obj='{"textTag":"p","href":"https://www.masterclass.com/articles/what-is-an-asset","linkCopy":"assets","category":null}'>assets</a>. Corporate investors consider company debt before investing in a company and typically ask for financial statements that show the current ratio of total assets to total liabilities.

What Are Liabilities?

Different types of liabilities factor into business accounting equations.<ol class="mc-m-4"><li class="mc-my-4"> 1. Current liabilities: Also known as short-term liabilities, current liabilities are debts that must be paid within a year&#39;s time. Examples of current liabilities include employee salaries, mortgage payments, rent payments, credit card debt, short-term loans, and sales taxes to be remitted. </li><li class="mc-my-4"> 2. Long-term liabilities: Also known as non-current liabilities, these refer to financial obligations for the next year and beyond. Examples include deferred tax liabilities, long-term interest payments, long-term loans, future bonds payable, pensions, and other forms of long-term debt. </li><li class="mc-my-4"> 3. Contingent liabilities: Some business owners and financial accounting professionals also list contingent liabilities on their general ledger. These are liabilities that could be owed in the future. These include refunds, lawsuit settlements, and fulfillment of product warranties. </li></ol>

3 Types of Liabilities

Liabilities appear in all corners of a business&#39;s operations. <ol class="mc-m-4"><li class="mc-my-4"> 1. Payments to lenders are long-term liabilities. There is an economic benefit in taking out business loans because they provide short-term liquidity. However, these loans must be reported as long-term liabilities on a balance sheet. </li><li class="mc-my-4"> 2. Annual income taxes are short-term liabilities. Income taxes are an annual affair. By definition, they count as short-term liabilities. </li><li class="mc-my-4"> 3. Unearned revenue can be a liability. If a company&#39;s <a href='https://masterclass.com/articles/how-to-read-and-understand-an-income-statement' target='_blank' class='mc-text--link' data-mc-segment-trigger='true' data-mc-segment-event-type='Article Page Click' data-event-obj='{"textTag":"p","href":"https://masterclass.com/articles/how-to-read-and-understand-an-income-statement","linkCopy":"income statement","category":"automated-link"}' automatic='true'>income statement</a> shows a deficit of anticipated revenue, this counts as a short-term liability. Companies budget for a certain level of annual cash flow, and when revenues do not meet expectations, they go to the right side of a balance sheet as a liability. </li></ol>

3 Examples of Liabilities

Accountants and accounting software use a couple of factors to distinguish between liabilities and expenses. <ul class="mc-m-4 list-styled"><li class="">An expense is a short-term cost of doing business. For instance, if you were to operate a corporate bank account for accounts receivable and that account came with monthly fees, you would deduct those fees from your <a href='https://www.masterclass.com/articles/gross-profit-vs-net-income' target='_self' class='mc-text--link' data-mc-segment-trigger='true' data-mc-segment-event-type='Article Page Click' data-event-obj='{"textTag":"p","href":"https://www.masterclass.com/articles/gross-profit-vs-net-income","linkCopy":"gross profit","category":null}'>gross profit</a> to arrive at a net profit for the month. Operating costs (like office supplies) that the business pays back on a monthly basis are considered expenses and reported on income statements. </li><li class="">Liabilities are more removed from day-to-day cash flow. Liabilities—like loans and other long-term debts—are not linked to short-term sales transactions. That said, some accrued expenses may end up as liabilities if they are paid over a long period of time. Liabilities are documented on a company’s balance sheet. </li></ul>

Liabilities vs. Expenses: What’s the Difference?

All investments and investment strategies entail inherent risks and introduce the potential for financial loss or the depreciation of assets. The information presented in this article is for educational, informational, and referential purposes only. Consult a professional investment advisor before making any financial commitments.

Regarding Financial Investments

Get the <a href='https://www.masterclass.com' target='_self' class='mc-text--link' data-mc-segment-trigger='true' data-mc-segment-event-type='Article Page Click' data-event-obj='{"textTag":"p","href":"https://www.masterclass.com","linkCopy":"MasterClass Annual Membership","category":null}'>MasterClass Annual Membership</a> for exclusive access to video lessons taught by business luminaries, including Bob Iger, Chris Voss, Robin Roberts, Sara Blakely, Daniel Pink, Howard Schultz, Anna Wintour, and more.

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In the world of business and accounting, a liability is a debt that your company owes.

In the world of business and accounting, a liability is a debt that your company owes.
