Financial Liability
A Financial Liability is a monetary amount (or service) owed due to the purchase of an asset.
- AKA: Liability (Financial Accounting).
- Context:
- It can be solved using the Accounting Equation, i.e. Financial Liability = Asset Value - Ownership Equity.
- It can (typically) result in future sacrifices of economic benefits that the entity is obliged to make to other entities as a result of past transactions or other past events.
- …
- Example(s):
- Counter-Example(s):
- See: Liabilities Account, Accounting Equation, Assets Account, Ownership Equity.
References
- See: IOU, Financial Accounting, Assets, Accounting Equation, Asset, Ownership Equity, Balance Sheet, International Accounting Standards Board.
References
2020
- (Wikipedia, 2020) ⇒ https://en.wikipedia.org/wiki/Liability_(financial_accounting) Retrieved:2020-4-19.
- In financial accounting, a liability is defined as the future sacrifices of economic benefits that the entity is obliged to make to other entities as a result of past transactions or other past events, the settlement of which may result in the transfer or use of assets, provision of services or other yielding of economic benefits in the future.
A liability is defined by the following characteristics:
- Any type of borrowing from persons or banks for improving a business or personal income that is payable during short or long time;
- A duty or responsibility to others that entails settlement by future transfer or use of assets, provision of services, or other transaction yielding an economic benefit, at a specified or determinable date, on occurrence of a specified event, or on demand;
- A duty or responsibility that obligates the entity to another, leaving it little or no discretion to avoid settlement; and,
- A transaction or event obligating the entity that has already occurred
- Liabilities in financial accounting need not be legally enforceable; but can be based on equitable obligations or constructive obligations. An equitable obligation is a duty based on ethical or moral considerations. A constructive obligation is an obligation that is implied by a set of circumstances in a particular situation, as opposed to a contractually based obligation.
The accounting equation relates assets, liabilities, and owner's equity:
: [math]\displaystyle{ \text{Assets} = \text{Liabilities} + \text{Owner's Equity} }[/math]
The accounting equation is the mathematical structure of the balance sheet.
Probably the most accepted accounting definition of liability is the one used by the International Accounting Standards Board (IASB). The following is a quotation from IFRS Framework:
Regulations as to the recognition of liabilities are different all over the world, but are roughly similar to those of the IASB.
Examples of types of liabilities include: money owing on a loan, money owing on a mortgage, or an IOU.
Liabilities are debts and obligations of the business they represent as creditor's claim on business assets.
- In financial accounting, a liability is defined as the future sacrifices of economic benefits that the entity is obliged to make to other entities as a result of past transactions or other past events, the settlement of which may result in the transfer or use of assets, provision of services or other yielding of economic benefits in the future.
2016
- (Investopedia, 2016) ⇒ Retrieved December 11, 2016 from http://www.investopedia.com/terms/l/liability.asp
- A liability is a company's financial debt or obligations that arise during the course of its business operations. Liabilities are settled over time through the transfer of economic benefits including money, goods or services. Recorded on the right side of the balance sheet, liabilities include loans, accounts payable, mortgages, deferred revenues and accrued expenses. (...) Generally, liability refers to the state of being responsible for something, and this term can refer to any money or service owed to another party. Tax liability, for example, can refer to the property taxes that a homeowner owes to the municipal government or the income tax he owes to the federal government. Liability may also refer to the legal liability of a business or individual. For example, many businesses take out liability insurance.