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Definition of 'Liability'

A liability is something that a person or company owes. Liabilities can be either current or long-term. Current liabilities are debts that must be paid within one year, while long-term liabilities are debts that will not be paid off for more than one year.

There are many different types of liabilities, including accounts payable, notes payable, bonds payable, and deferred income taxes. Accounts payable are amounts owed to suppliers for goods or services purchased on credit. Notes payable are formal written agreements to repay a debt, usually with interest. Bonds payable are long-term debt instruments that are issued by corporations or governments. Deferred income taxes are taxes that have been postponed until a future date.

Liabilities are important because they represent a company's financial obligations. The more liabilities a company has, the more debt it has to repay. This can make it difficult for a company to borrow money or make other investments. It can also make it difficult for a company to stay afloat if its business takes a downturn.

There are a number of ways to manage liabilities. One way is to keep them under control by not taking on too much debt. Another way is to make sure that the company has enough cash flow to meet its debt obligations. Finally, a company can try to negotiate lower interest rates on its debt.

Liabilities are an important part of financial management. By understanding what liabilities are and how they work, companies can better manage their financial health.

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