Liability

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In accounting, a liability is the financial obligation of a business which, at present, has not been paid.

Common examples of liabilities include accounts payable to vendors who supply goods to be resold or used in manufacturing, taxes owed to governmental entities, deferred wages, leases (operating and capital), and mortgages and bond instruments.

Liabilities are classified as Current and Long-Term (or Non-Current). Current liabilities are those which are due in one year or less, such as accounts payable and taxes owed, and specifically include that portion of long-term liabilities that are due in one year or less. All other liabilities are considered long-term (such as capital leases, mortgages, and bond repayments)

While many liabilities are known with precision, many others have to be accrued based on estimates. Insurance companies routinely estimate claims that will arise in the future from events that have already occurred. Most large companies make routine monthly estimates of costs for legal and outside accounting services, and accrue them during the year.