What is Liabilities?

Liabilities are the business's obligations: money or services owed to someone else. They appear on the balance sheet, separated into current and long-term.

Current liabilities

Due within a year:

• Accounts payable to suppliers
• Credit card balances
• Payroll liabilities, such as withheld taxes not yet deposited
• Sales tax collected and not yet paid
• Accrued expenses
• Deferred revenue, such as customer deposits
• The portion of long-term loans due within 12 months

Long-term liabilities

Due after more than a year, such as the remaining balance of equipment loans, mortgages and long-term owner loans.

Why they matter

Liabilities tell you what must be paid from future cash. Comparing current liabilities with current assets shows whether the business can meet its short-term obligations; see liquidity.

Liabilities that are not your money

Sales tax collected and payroll taxes withheld belong to the government from the moment you collect them. Treating them as available cash is a serious risk; see the trust fund recovery penalty.

Common mistakes

• Recording loan proceeds as income instead of a liability
• Expensing loan principal payments
• Leaving sales tax inside revenue

See recording loan payments and how to read a balance sheet.

Related terms

• Accounts Payable: Accounts payable is the money your business owes suppliers and vendors for goods or services received but not yet paid for.
• Assets: Assets are resources a business owns or controls that are expected to provide future economic benefit.
• Accrued Expenses: Accrued expenses are costs a business has incurred but not yet been billed for or paid.
• Deferred Revenue: Deferred revenue is money received for goods or services the business has not yet delivered, recorded as a liability.

Browse more definitions in the small business glossary.