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What are Liabilities?

Liabilities (Definition)

Put simply, liabilities refer to debt that you owe. For businesses, liabilities are defined by prior business transactions, such as the sale of assets or services, the exchange of goods and services, or any other transaction that would result in an economic gain in the future. It could be short term, like a credit card, or long term such as a mortgage on a property. These all become part of your business’ net income every year. Liabilities also include items such as:

  • Wages payable (the total amount of money that employees have earned but haven't yet been paid)
  • Interest payable is the interest accrued on short term credit purchases
  • Dividend’s payable is the money companies owe shareholders after a dividend is declared
  • Unearned revenues are when a company is paid in advance on a promise to deliver goods or services later
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