What is liability?


What is Liability?

Liability means to legally be responsible for something.

In finance, this means to legally owe something to another party or have an obligation to another party.

Liabilities are the opposite of assets.

Assets are tangible or intangible things which a business or person owns that can be sold for value . This includes stocks, intellectual property, real estate etc
To figure out your net worth you simply subtract your liabilities from your assets


Liabilities can be personal or business.

Personal liabilities could be a mortgage, a loan, a credit card or student loans

Business liabilities could be a business loan, an overdraft facility, payroll accounts for its staff or stocks it has bought which has a short lifetime can be classified as liabilities.

Businesses sort their liability into long term or short term liability.

Short term liabilities are usually due within the year whilst long term liabilities are much longer.


Legal Liability

Liability can also refer to legal liability. Some businesses will get liability insurance to protect them from this liability in case someone sues them for negligence.

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