Liability
Definition
A liability is money the business owes. Loans, Accounts Payable, credit card balances, and payroll taxes owed are all liabilities.
Example
Northstar Creative owes $1,100 in Accounts Payable, $600 on a credit card, and $5,000 on a loan. Total liabilities are $6,700.
Why It Matters
Liabilities show what the business owes. Tracking them correctly is essential for an accurate Balance Sheet and for knowing what must be paid.