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liability

ly-uh-BIL-uh-tee /ˌlaɪəˈbɪlɪti/

nounB2TOEFLIELTS

generalbusiness

The state of being responsible for something, especially by law; in accounting, a company's legal financial debts or obligations that arise during the course of business operations.

In finance, a liability is an obligation to another party, representing a future outflow of economic benefits. It's essentially what a company owes.

The story behind the word. The word 'liability' comes from the Latin 'ligare,' meaning 'to bind.' This root gives us words like 'ligament' and 'oblige.' So, a liability is something that 'binds' you, an obligation or debt that you are tied to and must fulfill. It's the financial chain around your ankle!

Word relationships

debt: A specific amount owed; 'liability' is a broader term for financial obligations, which can include debts.
obligation: A duty or commitment; 'liability' is a financial or legal obligation.

asset: Something owned that has value, rather than something owed.

Commonly confused with

asset: An 'asset' is something you own that has value, while a 'liability' is something you owe to someone else.

Word family

liable (adjective): Responsible by law; legally answerable.

Collocations

current liabilities
long-term liabilities
total liabilities
limited liability
product liability

Idioms & expressions

a definite liability

Example sentences

"The company's liabilities included accounts payable to suppliers, a bank loan, and deferred revenue for services yet to be rendered." Examples of company liabilities.
"His personal liabilities consisted primarily of his mortgage, student loan debt, and credit card balances." Personal liabilities.
"The manufacturer faced significant product liability after a defect in their new device caused widespread harm." Legal liability.

Memory hook

A LIABILITY is something that makes you LIABLE to pay. Bound to pay

When not to use

While 'liability' can mean a disadvantage or handicap, in an accounting context, it strictly refers to financial obligations.

Fun facts

Liabilities are also listed on a company's balance sheet, alongside assets and equity.
The concept of 'limited liability' is fundamental to modern corporations, protecting shareholders from personal responsibility for the company's debts.