liability

accounting

Also known as: liabilities

Written by

The Information Architects of Encyclopaedia Britannica

Last updated

June 30, 2026

Quick Summary

In accounting, liability refers to a duty, debt, or responsibility that arises from a contract, tort, or statute. A current liability is a debt that occurs in the normal course of business and must be settled relatively quickly, such as accounts payable or accrued interest.12

There are two primary accounting methods:
* Cash basis accounting: Tracks income and expenses based on when cash is received or paid out.3
* Accrual basis accounting: Records revenue when it is earned and expenses when they are incurred, regardless of when cash changes hands. Publicly traded and regulated companies typically use accrual accounting, adhering to Generally Accepted Accounting Principles (GAAP).3

Summary created from Britannica articles using AI. AI can make mistakes, so verify using Britannica articles.

3 Britannica Sources

Ask Britannica AI about this topic

Britannica doesn't have a full article on this topic, so we've curated a list of our relevant coverage.

balance sheet
…rights owned by the company), liabilities (funds provided by outside lenders and other creditors), and the owners’ equity. On the balance sheet, total assets must always equal total liabilities plus total owners’ equity.
Read More
…rights owned by the company), liabilities (funds provided by outside lenders and other creditors), and the owners’ equity. On the balance sheet, total assets must always equal total liabilities plus total owners’ equity.
Read More

corporate finance
, owners’ equity) and liability. Examples of equity are proceeds from the sale of stock, returns from investments, and retained earnings. Liabilities include bank loans or other debt, accounts payable, product warranties, and other types of commitments from which an entity derives value.
Read More
, owners’ equity) and liability. Examples of equity are proceeds from the sale of stock, returns from investments, and retained earnings. Liabilities include bank loans or other debt, accounts payable, product warranties, and other types of commitments from which an entity derives value.
Read More

accounting
The balance sheet
…by the entity; (2) the liabilities, which are probable future sacrifices of economic benefits; and (3) the owners’ equity, calculated as the residual interest in the assets of an entity after deducting liabilities.
Read More
…by the entity; (2) the liabilities, which are probable future sacrifices of economic benefits; and (3) the owners’ equity, calculated as the residual interest in the assets of an entity after deducting liabilities.
Read More