What is a liability?
A liability is something the business owes. Under the IFRS Conceptual Framework, it is a present obligation to transfer an economic resource as a result of past events. Liabilities sit opposite assets in the [accounting equation](/glossary/accounting-equation).
Current liabilities
Due within 12 months:
- [Accounts payable](/glossary/accounts-payable)
- [Accrued expenses](/glossary/accrued-expenses)
- Short-term loans and overdrafts
- Taxes payable, such as VAT, payroll and income tax
- [Deferred revenue](/glossary/deferred-revenue)
- The current portion of long-term debt
Non-current liabilities
Due after 12 months. See [non-current liabilities](/glossary/non-current-liabilities):
- [Long-term debt](/glossary/long-term-debt)
- Lease liabilities
- Deferred tax liabilities
- Long-term [provisions](/glossary/provision)
Contingent liabilities
Possible obligations that depend on future events, such as a lawsuit outcome. They are disclosed in the notes rather than recorded unless a payment is probable and can be estimated.
Example
A business owes suppliers $25,000, has an overdraft of $5,000 and a five-year loan of $60,000 ($12,000 due this year). Current liabilities = $42,000; non-current liabilities = $48,000.
Key ratios
- [Current ratio](/glossary/current-ratio)
- Debt-to-equity ratio
- [Solvency](/glossary/solvency) ratios