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Accounting Terms > Liability

Liability – A liability comes about when a past event occurred that caused an organization to assume an obligation, which needs to be paid in the future. It is defined as possessing the following characteristics.

A) Any type of borrowing from persons or banks for improving a business or personal income that is payable during short or long time;

B) A duty or responsibility to others that entails settlement by future transfer or use of assets, provision of services, or other transaction yielding an economic benefit, at a specified or determinable date, on occurrence of a specified event, or on demand;

C) A duty or responsibility that obligates the entity to another, leaving it little or no discretion to avoid settlement; and,

D) A transaction or event obligating the entity that has already occurred.