Liability

What is a liability?

A liability is a present obligation of the company arising from past events, the settlement of which is expected to result in an outflow of resources. Under IFRS (the Conceptual Framework, IAS 1) and US GAAP, liabilities appear on the balance sheet opposite assets, classified by maturity.

Current vs. non-current

• Current liabilities (settle within 12 months):
  • Trade payables — amounts owed to suppliers.
  • Accrued expenses — recognised costs not yet invoiced.
  • Short-term debt and current portion of long-term debt.
  • Deferred revenue — cash received before performance obligations are met (common for SaaS).
  • Tax payable.
• Non-current liabilities (settle beyond 12 months):
  • Long-term debt — bank loans, bonds, convertible notes.
  • Lease liabilities (IFRS 16).
  • Deferred tax liability.
  • Provisions for warranties, restructuring, litigation.

Liability vs. related concepts

• Liability vs. expense: a liability is a balance-sheet obligation; an expense flows through the income statement. They are linked: when an expense is incurred but not paid, it creates an accrued liability.
• Liability vs. equity: liabilities are claims by creditors; equity is the residual claim by shareholders.
• Liability vs. contingent liability: a contingent liability is possible (e.g., pending lawsuit) and only disclosed in notes — not recorded — unless probable and measurable.

Why founders watch the liability side

Deferred revenue is friendly debt — customers paid you upfront. Debt that requires fixed monthly servicing is unforgiving. In due diligence, expect detailed schedules: debt maturity walls, lease commitments, off-balance-sheet exposures, contingent liabilities.

Do: maintain a debt-maturity ladder showing principal and interest cash outflows by quarter for 24+ months.
Don’t: hide obligations off-balance-sheet via complex structures — modern IFRS (especially IFRS 16 for leases) closes most of those doors, and DD will surface them.