Liability
A liability is a legal obligation to settle a debt or commitment.
An organization settles a liability by transferring economic benefits, such as cash, goods, or services. In lease accounting, an example is the present value of future lease payments.
Liabilities are classified as:
• Short-term liabilities – Due within the next accounting year, such as accounts payable, taxes payable, customer advances, or the current portion of long-term debt.
• Long-term liabilities – Due after the next accounting year, such as long-term lease obligations.