Liability
A liability is an obligation a company owes to someone else, settled later by paying cash, handing over goods or providing a service.
Liabilities sit on the opposite side of the balance sheet from assets, alongside equity. Current liabilities fall due within a year: supplier invoices, wages and tax owed, the next twelve months of loan repayments. Non-current liabilities are the longer obligations, such as bonds, long leases and pension promises.
Liabilities are how most of a company's assets got funded. Everything on the asset side was supplied by a lender, a supplier or an owner, so this column answers who has a claim on what the business holds and in what order they are paid if it stops trading. Creditors rank ahead of owners, which is the whole reason equity is called a residual. The repayment schedule behind any borrowed portion works the same way as a household loan, which the loan payment calculator sets out period by period.
The mistake is reading every liability as trouble. Deferred revenue is a liability created by customers paying in advance, which is usually good news. Trade payables are short-term funding from a supplier with no interest stated on the invoice, though that is not the same as free: where the terms offer a discount for early settlement, giving up the discount to hold the cash longer can cost more than borrowing from a bank. What matters is whether an obligation carries interest, when it falls due, and whether the cash to settle it arrives before then. A large balance of cheap, patient obligations is a different thing from a small pile of expensive ones due next month.