Liability Guide, Meaning , Facts, Information and Description
In the most general sense, a liability is anything that is a hinderance, or puts one at a disadvantage.
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2 In law 3 An example (from both accounting and law) 4 See also |
In accounting
In accounting, a financial liability is something that is owed to another party. This is typically contrasted with an asset which is something of value that you own. The basic accounting equation relates assets, liability, and capital (or equity) thus:
liabilities + equity = assetswhere assets are what you own, liabilities are what you owe to others, and equity is what you have contributed to the venture.
Examples of types of liabilities include: money owing on a loan, money owing on a mortgage, or an IOU.
In law
In law a legal liability is a term used to describe situations in which a person is liable, for, say, damage to property and is therefore responsible to pay compensation for any damage incurred; liability may be civil or criminal.
In commercial law, limited liability is a form of business ownership in which business owners are legally responsible for no more than the amount that they have contributed to a venture. If for example, a business goes bankrupt an owner with limited liability will not lose unrelated assets such as a personal residence (assuming they do not give personal guarantees). For an explanation see business entity.