liability

Definition

An obligation that legally binds an individual or company to settle a debt. When one is liable for a debt, they are responsible for paying the debt or settling a wrongful act they may have committed.

For example, if John hits Jane's car, John is liable for the damages to Jane's vehicle because John is responsible for the damages.

In the case of a company, a liability is recorded on the balance sheet and can include accounts payable, taxes, wages, accrued expenses, and deferred revenues. Current liabilities are debts payable within one year, while long-term liabilities are debts payable over a longer period.

See also: List of Key Accounting Terms and Definitions at InvestorGuide.com.

Use liability in a sentence

You need to make sure that you are doing your best to cover up for any liability that may be behind you.

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I realized that I would have the liability in the incident and would have to pay for the damages that had happened.

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When our company tried to merge with our competitor, we knew they had a strong liability on their balance sheet from asbestos the company manufactured decades ago.

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