Liabilities

Liability A liability is simply an obligation to pay. When a company purchases something it creates a liability to pay for it. The liability remains until the company pays for it. Sometimes a company has a liability to its customers. One example of that is when a person pays for a subscription to a magazine, but has not yet received all of the issues. Each time the company sends the subscriber an issue of the magazine the company’s liability decreases. Liabilities are listed as either current liabilities (those bills that are due to be paid between now and one year from now), and long-term liabilities (those bills that come due a year from now or later). A current liability would be like our example of the magazine subscription or for office supplies or raw materials. Long-term liabilities would be like mortgages and equipment that are financed for more than a year. The portion of the mortgage or equipment payment that is due and payable during the present year is part of current liabilities and the part that comes due more than a year from now is a long-term liability.

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