An obligation that legally binds an individual or company to settle a debt. Liabilities are settled over time through the transfer of economic benefits including money, goods or services. For example, the present value of future finance lease payments.

Liabilities may be classified into short-term and long-term. Long-term liabilities are liabilities that are not due within the coming accounting year, such as long-term lease obligations. Short-term liabilities are those due within an accounting year, such as accounts payable, customer advances, taxes payable and any payments due that year on a long-term loan.