Glossary
Liabilities
What a company owes to others, such as loans, bonds, payables and deferred revenue, shown on the balance sheet.
Liabilities are a company's obligations to others: money, goods or services it owes as a result of past transactions. They sit on the right-hand side of the balance sheet next to shareholders' equity, and together the two explain how the company's assets were financed. Reading liabilities tells you how much of the business belongs to creditors and how soon those claims fall due.
How they fit the balance sheet
Current and long-term
Balance sheets split liabilities by timing:
- Current liabilities, due within a year: accounts payable to suppliers, accrued wages and taxes, short-term debt, the current portion of long-term debt, and deferred (unearned) revenue, which is cash collected for products or services not yet delivered.
- Non-current liabilities, due later: bonds and term loans, lease obligations, pension obligations and deferred taxes. Since the US lease standard ASC 842 took effect in 2019, most operating leases also appear here.
What to watch for
Not all liabilities are alike. Interest-bearing debt carries fixed payments and covenants and is the main source of default risk. Deferred revenue, by contrast, is often a good sign: customers have paid in advance, as with software subscriptions. Comparing current liabilities with current assets (the current ratio) shows near-term liquidity, while debt-to-equity shows how heavily the company relies on borrowed money. Some obligations, such as legal claims that are possible but not probable, appear only in the notes.