Liabilities

Liabilities are obligations of an entity to transfer assets or provide services in the future, arising from past events. They are recognized on the balance sheet when a present obligation exists and settlement is expected to require an outflow of resources. The amount can be measured reliably, and the obligation reflects a claim against the entity’s future resources.

Liabilities are commonly classified as current and non-current. Current liabilities are those due within one year or within the entity’s operating cycle, whichever is longer. Non-current liabilities are due after more than one year. Examples of current liabilities include accounts payable, short-term borrowings, the current portion of long-term debt, accrued expenses, taxes payable, and deferred revenue. Non-current liabilities include long-term debt, lease liabilities, and certain pension or other post-employment obligations.

Recognition and measurement follow accounting standards. Financial liabilities are typically carried at amortized cost using the effective-interest method, or at fair value with changes recognized in profit or loss, depending on the instrument. Non-financial liabilities are recorded at the best estimate of the expenditure required to settle the obligation. The criteria for recognizing a liability require a present obligation from a past event and a probable outflow of resources.

Contingent liabilities are potential obligations dependent on uncertain future events. They are usually disclosed in notes to the financial statements unless the loss is virtually certain and estimable, in which case a provision may be recognized. Liabilities affect a company’s liquidity and solvency, shaping its ability to meet obligations as they come due.