liability

(noun)

An obligation, debt or responsibility owed to someone.

Related Terms

Examples of liability in the following topics:

  • Components of the Balance Sheet

    • The balance sheet relationship is expressed as; Assets = Liabilities + Equity.
    • The balance sheet contains statements of assets, liabilities, and shareholders' equity.
    • Liabilities are the debts owed by a business to others–creditors, suppliers, tax authorities, employees, etc.
    • A business incurs many of its liabilities by purchasing items on credit to fund the business operations.
    • Differentiate between the three balance sheet accounts of asset, liability and shareholder's equity

  • Liabilities and Equity

    • The balance sheet contains details on company liabilities and owner's equity.
    • A liability is defined by the following characteristics:
    • If liability exceeds assets, negative equity exists.
    • After liabilities have been accounted for, the positive remainder is deemed the owner's interest in the business.
    • Net assets is the difference between the total assets of the entity and all its liabilities.

  • Balance Sheets

    • A standard balance sheet has three parts: assets, liabilities, and ownership equity; Asset = Liabilities + Equity.
    • A standard company balance sheet has three parts: assets, liabilities, and ownership equity.
    • Assets are followed by the liabilities.
    • According to the accounting equation, net worth must equal assets minus liabilities.
    • The small business's equity is the difference between total assets and total liabilities.

  • Temporal Classification

    • Cash, receivables, and liabilities on the Balance Sheet are re-measured into U.S. dollars using the current exchange rate.
    • Most accounting balance sheets classify a company's assets and liabilities into distinct groups such as current assets property, plant, equipment, current liabilities, etc.
    • Cash, receivables, and liabilities are re-measured into U.S. dollars using the current exchange rate.
    • A method of foreign currency translation that uses exchange rates based on the time assetsand liabilities are acquired or incurred, is required.
    • Assets and liabilities valued at current costs use the current exchange rate and those that use historical exchange rates are valued at historical costs.

  • Calculating Working Capital

    • Current liabilities (CL) is an accounting term similar to CA: CL is the amount of liabilities that are expected to be settled in cash within a year (or the operating cycle of the company).
    • It signals whether or not the company has enough assets to turn into cash to pay off upcoming liabilities.
    • WC, though, does not guarantee that a company can pay off all short-term expenses or liabilities.
    • They also have $50 of current liabilities.

  • Changes in the Monetary Base

    • First, we list the Fed's total assets in Equation 2 and total liabilities in Equation 3.
    • Total Liabilities = Currency outstanding (C) + deposits by depository institutions (D) +
    • Total Liabilities = Monetary base (B) + U.S.
    • Subsequently, we use the accounting identity as defined by Equation 5 to relate the Fed's assets, liabilities, and capital.
    • Moreover, if the Fed acquires a liability in Equation 6, then the monetary base, bank reserves, and the money supply all fall.

  • Preparation of the Balance Sheet

    • All balance sheets follow the same format: when two columns are used, assets are on the left, liabilities are on the right, and net worth is beneath liabilities.
    • When one column is used, assets are listed first, followed by liabilities and net worth.
    • Liabilities are claims of creditors against the assets of the business.
    • These are debts owed by the business.There are two types of liabilities: current liabilities and long-term liabilities.
    • Liabilities are arranged on the balance sheet in order of how soon they must be repaid.

  • Liquidity

    • A standard company balance sheet has three parts: assets, liabilities and ownership equity.
    • The quick ratio, which is calculated by deducting inventories and prepayments from current assets and then dividing by current liabilities--this gives a measure of the ability to meet current liabilities from assets that can be readily sold.
    • The operating cash flow ratio can be calculated by dividing the operating cash flow by current liabilities.
    • It shows the number of times short-term liabilities are covered by cash.
    • The formula is the following: LR = liquid assets / short-term liabilities.

  • Answers to Chapter 10 Questions

    • A bank's net worth equals bank's total assets minus total liabilities.
    • Something severe happens to a bank that causes total liabilities to exceed total assets.
    • If a bank forecloses on a home that is losing value, then too many foreclosures cause total liabilities to exceed total assets.
    • Banks split their assets and liabilities into long term and short term.
    • Then banks scrutinize the short-term assets and liabilities because if the interest changes, subsequently, it immediately impacts these assets and liabilities.

  • Current Ratio

    • It shows the number of times short-term liabilities are covered by cash.
    • It compares a firm's current assets to its current liabilities.
    • Current asset is an asset on the balance sheet that can either be converted to cash or used to pay current liabilities within 12 months.
    • Current liabilities are often understood as all liabilities of the business that are to be settled in cash within the fiscal year or the operating cycle of a given firm, whichever period is longer.
    • A high current ratio means that the company is more likely to meet its liabilities which fall due in the next 12 months.