Liabilities

What are liabilities?

Liabilities are what your business owes. Every unpaid bill, loan balance, and credit card debt is a liability. On your balance sheet, liabilities represent claims against your assets—money that will eventually need to be paid out.

Managing liabilities carefully is essential for maintaining healthy cash flow and building a sustainable business.

Types of liabilities

Liabilities are categorized by when they're due:

• Current liabilities — Due within one year: accounts payable, credit card balances, short-term loan payments, payroll taxes owed
• Long-term liabilities — Due beyond one year: mortgages, equipment loans, long-term financing

Liabilities vs. expenses

Expenses are costs you've already paid or that reduce your profit. Liabilities are amounts you still owe. When you receive materials on credit, you have a liability (accounts payable). When you pay for those materials, the liability becomes an expense. The distinction matters for understanding both your profitability and your cash obligations.