Contents 1 Accounting liability 1.1 Classification of accounting liabilities 1.2 Bank account example 2 Legal liability 3 See also 4 External links

In the most general sense, a liability is anything that is a hindrance, or puts individuals at a disadvantage.

Accounting liability

In financial accounting, a liability is defined as an obligation of an entity arising from past transactions or events, the settlement of which may result in the transfer or use of assets, provision of services or other yielding of economic benefits in the future. Financial accountancy (or financial accounting) is the field of Accountancy concerned with the preparation of Financial statements for decision makers In Business and Accounting, assets are everything owned by a person or company (all tangible and intangible property that can be converted into cash. Individual or group must adopt corporate charter and file it with the state.

• They embody a duty or responsibility to others that entails settlement by future transfer or use of assets, provision of services or other yielding of economic benefits, at a specified or determinable date, on occurrence of a specified event, or on demand;
• The duty or responsibility obligates the entity leaving it little or no discretion to avoid it; and,
• The transaction or event obligating the entity has already occurred.

Liabilities in financial accounting need not be legally enforceable; but can be based on equitable obligations or constructive obligations. An equitable obligation is a duty based on ethical or moral considerations. A constructive obligation is an obligation that can be inferred from a set of facts in a particular situation as opposed to a contractually based obligation.

The accounting equation relates assets, liabilities, and owner's equity:

Assets = Liabilities + Owner's Equity

The accounting equation is the mathematical structure of the balance sheet. The basic accounting equation is the foundation for the Double-entry bookkeeping system. In Business and Accounting, assets are everything owned by a person or company (all tangible and intangible property that can be converted into cash. In accounting terms after all liabilities are paid ownership equity is the remaining interest in Assets If valuations placed on assets do not exceed liabilities In Financial accounting, a balance sheet or statement of financial position is a summary of a person's or organization's balances

The Australian Accounting Research Foundation [1] defines liabilities as future sacrifice of economic benefits that the entity is presently obliged to make to other entities as a result of past transactions and other past events.

Probably the most accepted accounting definition of liability is the one used by the International Accounting Standards Board (IASB). The International Accounting Standards Board (IASB founded on April 1 2001 is the successor of the International Accounting Standards Committee (IASC founded in June The following is a quotation from IFRS Framework:

A liability is a present obligation of the enterprise arising from past events, the settlement of which is expected to result in an outflow from the enterprise of resources embodying economic benefits

– F. 49(b)

Regulations as to the recognition of liabilities are different all over the world, but are roughly similar to those of the IASB.

Examples of types of liabilities include: money owing on a loan, money owing on a mortgage, or an IOU.

Classification of accounting liabilities

Liabilities are reported on a balance sheet and are usually divided into two categories:

• Current liabilities — these liabilities are reasonably expected to be liquidated within a year. In Financial accounting, a balance sheet or statement of financial position is a summary of a person's or organization's balances In Accounting, current liabilities are considered Liabilities of the business that are to be settled in cash within the Fiscal year or the operating cycle They usually include payables such as wages, accounts, taxes, and accounts payables, unearned revenue when adjusting entries, portions of long-term bonds to be paid this year, short-term obligations (e. A wage is a compensation workers receive in exchange for their labor. In Accountancy, an account is a label used for recording and reporting a Quantity of almost anything Accounts payable is a file or account that contains Money that a person or company owes to Suppliers, but hasn't paid yet (a form of Debt) In Accounting / Accountancy, adjusting entries are journal entries usually made at the end of an accounting period to allocate Income and g. from purchase of equipment), and others.
• Long-term liabilities — these liabilities are reasonably expected not to be liquidated within a year. Long-term liabilities are liabilities with a future benefit over one year such as notes payable that mature greater than one year They usually include issued long-term bonds, notes payables, long-term leases, pension obligations, and long-term product warranties. In Finance, a bond is a Debt security, in which the authorized issuer owes the holders a debt and is obliged to repay the principal and Interest See also Leasing, Renting A lease is a Legal document, but can be an oral arrangement which confers a right on one person (called A pension is a steady income given to a person upon Retirement, typically in the form of a guaranteed annuity. In commercial and consumer transactions a warranty is an Obligation or guarantee that an article or service sold is as factually stated or legally

Liabilities of uncertain value or timing are called provisions - see Provision (Accounting). In Financial accounting, provisions are precautions or Liabilities similar to Accruals for which the amount or probability of occurrence are not known

Bank account example

Money deposited with a bank becomes a liability of the bank, because the bank has an obligation to pay the depositor the money deposited; usually on demand. (The money deposited is an asset for the depositor; but this asset will not be recorded by the bank because it is not the bank's asset. In Business and Accounting, assets are everything owned by a person or company (all tangible and intangible property that can be converted into cash. If the depositor maintains accounting records separate and apart from the bank account maintained by the bank, only then will the asset be recorded. )

A debit increases an asset; and a credit decreases an asset. Debit and credit are formal Bookkeeping and Accounting terms They are the most fundamental concepts in accounting representing the two records that one Debit and credit are formal Bookkeeping and Accounting terms They are the most fundamental concepts in accounting representing the two records that one A debit decreases a liability; and credit increases a liability. Debit and credit are formal Bookkeeping and Accounting terms They are the most fundamental concepts in accounting representing the two records that one Debit and credit are formal Bookkeeping and Accounting terms They are the most fundamental concepts in accounting representing the two records that one

When a bank receives a deposit it credits a liability account called "Deposits" and credits the depositor's bank account for the same amount (the bank's "Deposits" account is the sum of all of the amounts credited to all of its customer's individual bank accounts). A deposit received by a bank is credited because the bank's liability to its customer, the depositor, increases. When a bank informs its depositor that it has debited the depositor's bank account, it means that the depositor's bank account has been decreased by the amount debited.

Legal liability

• In law a legal liability is a situation in which a person is liable, such in situations of tort concerning property or reputation and is therefore responsible to pay compensation for any damage incurred; liability may be civil or criminal. Law is a system of rules enforced through a set of Institutions used as an instrument to underpin civil obedience politics economics and society Tort law is the name given to a body of law that creates and provides remedies for civil wrongs that do not arise out of Contractual duties Property is any physical or virtual entity that is owned by an individual Reputation is the opinion (more technically a social evaluation of the public toward a Person, a group of people, or an Organization. Civil law, as opposed to Criminal law, refers to that branch of Law dealing with disputes between Individuals and/or Organizations, in which The term criminal law, sometimes called penal law, refers to any of various bodies of rules in different Jurisdictions whose common characteristic is the potential See Strict liability. Strict liability is a Legal doctrine that makes a person responsible for the damage and loss caused by his/her acts and omissions regardless of Culpability (or fault Under English law, with the passing of the Theft Act 1978, it is an offense to dishonestly evade a liability. English law is the legal system of England and Wales, and is the basis of Common law legal systems used in most Commonwealth countriesand the The Theft Act 1978 supplemented the earlier Deception offences in English law contained in sections 15 and 16 of the Theft Act 1968 by reforming some aspects of those Payment of damages usually resolved the liability. In Law, damages refers to the money paid or awarded to a Claimant (England Pursuer (Scotland or Plaintiff (US following a successful Vicarious liability arises under the common law doctrine of agency – respondeat superior – the responsibility of the superior for the acts of their subordinate. This article is about vicarious liability in private litigation for vicarious liability in criminal law see Vicarious liability (criminal. Agency is an area of Commercial law dealing with a Contractual or Quasi-contractual Tripartite set of relationships when an Agent " Respondeat superior " ( Latin: "let the master answer" is a Legal doctrine which states that in many circumstances an Employer is
• In commercial law, limited liability is a form of business ownership in which business owners are legally responsible for no more than the amount that they have contributed to a venture. Commercial law (sometimes known as business law) is the body of Law which governs Business and commercial transactions Limited liability is a concept whereby a person's financial Liability is limited to a fixed sum most commonly the value of a person's investment in a company or partnership If for example, a business goes bankrupt an owner with limited liability will not lose unrelated assets such as a personal residence (assuming they do not give personal guarantees). Bankruptcy is a legally declared inability or impairment of ability of an individual or organization to pay their Creditors Creditors may file a bankruptcy petition against This is the standard model for larger businesses, in which a shareholder will only lose the amount invested (in the form of stock value decreasing). For an explanation see business entity. A business (also called firm or an enterprise) is a legally recognized organizational entity designed to provide goods and/or services to
• Manufacturer's liability is a legal concept in most countries that reflects the fact that producers have a responsibility not to sell a defective product. See product liability. Product liability is the area of law in which manufacturers distributors suppliers retailers and others who make products available to the public are held responsible for the injuries

See also

• Accrued liabilities
• List of accounting topics
• List of business law topics
• Liability insurance
• Contingent Liabilities
• Limited partnership
• Stockholders' deficit
• Public liability

External links

• Liability resources, case history, checklists, news and general risk management

Accrued liabilities are Liabilities which have occurred but have not been paid or logged under Accounts payable during an accounting period in other words obligations Following is a list of accounting topics Accounting Ethics Accounting for risk Accounting information system This is a list of business law topics within the field of Commercial law. Liability insurance is a part of the general Insurance system of Risk financing Contingent liabilities are Liabilities that may or may not be incurred by an entity depending on the outcome of a future event such as a Court case. A limited partnership is a form of Partnership similar to a General partnership, except that in addition to one or more general partners (GPs there are In Accounting, retained earnings refers to the portion of Net income which is retained by the corporation rather than distributed to its owners as Dividends Public liability is part of the law of Tort which focuses on civil wrongs

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