Accounting Definitions - Exploring Liability Concept

Accounting definitions are important for thosedue within a period of one year or shorter.
who is learning accounting and want to masterExamples can be note payable, accounts payable,
theory and practice. These definitions providesalaries payable.
understanding of the main accounting aspects and- Long-term Liabilities - these are items with the
their practical application. This article will explorematurity date after one year, i.e. will have to
definition of liability.repaid back within comparatively long time.
ConceptExamples are long-term loans. Usually such liabilities
Considering the definition of Liability we can that itare repaid back in certain parts, therefore part of
is a debt owed by the business to the thirdlong-term liabilities can be current, i.e. payable
parties, i.e. creditors. Referring to the basicwithin one year and is included into the current
accounting equation, wheregroup. Balance Sheet must provide separate
Assets=Liabilities+Equity, we can see that Liabilitiesexact information on the above groups of liabilities
is one of the sources with which the assets ofin order to judge how much current debt business
the business are being financed. Liabilities arehas and whether comparing to the current assets
financial means which do not belong to theit will be able to pay this debt on time.
shareholders and which have a certain maturityReferring to the accounting entries and accounts,
date, i.e. must be returned back at the certainLiability Account has a credit balance and when
date.we account for a new debt, increase in it is
Items Includedreflected as a credit entry. When we account for
Depending on the maturity period, liabilities arethe debt repaid back, we decrease balance of the
divided into 2 groups:corresponding liability account by debiting it.
- Current Liabilities - these are items which will be