Liability
In accounting, liability means a present obligation of the entity to transfer an economic benefit (FASB CON 8 ¶E37).
- Layer
- Lexicon
- Defined in
- Lexicon
- Components
- 2
Authority
This definition follows CON 8, Ch. 4, ¶E37.
Every citation in this system, with the text we read and the date we checked it, is in US GAAP and where these rules come from.
The lessons that teach this
Accounting, 0 to 1 — a free course taught end to end on one month of one company, with the spreadsheet exercises to work it yourself.
- 02The accounting equationAssets = liabilities + equity is not a formula you apply at period end. It is true after every single entry, and that is what makes the books provable.7 min
- 03Accounts, and the five typesEvery account belongs to exactly one of five types, and its type decides which side increases it. Get the type right and the entry writes itself.9 min
- 11The balance sheetThe other three account types, at one instant — and the single line where the month's profit lands, which is what ties the two statements together.10 min
Liability, in use
Quoted from the 6 documents that use the word — what it does to an interface, in the spec's own sentence.
Coding the invoice against the accrued liability also works, but depends on someone remembering; auto-reversal removes that dependency.
Schedules, accruals & roll-forwards — 3. Accrued liabilities
A customer with a net credit (overpayment, unapplied cash) appears as a negative in the aging and should arguably be reclassified to a liability at period end.
ROU asset and lease liability as parallel columns — they amortize on different curves and diverge.
For founders
The same idea written for a founder: what it costs a startup that ignores it, and what to do in a real month.
- Convertible noteA loan from an investor that converts into shares at your next priced round, usually with a valuation cap or a discount. Unlike a SAFE it's debt: it accrues interest and has a maturity date.
- Form 941 and payroll tax deposits for startupsWhat Form 941 reports, monthly vs semiweekly deposits, the $100,000 next-day rule, FUTA, the R&D payroll credit, and what your provider can’t do.
- How to account for SAFEs on your balance sheetA SAFE is cash today and shares later. Why it usually sits with liabilities, how the cap and discount set conversion, and what to book at the priced round.
- Balance sheet explained for startupsAssets equal liabilities plus equity. What each startup line means, from deferred revenue to the SAFE and the accumulated deficit, and why it must balance.
What it is not called
Each of these is a real word for a different thing. Using it here is what makes a product read as though it was built by someone who has not done the work.
- debt (debt is one kind of liability)
Components that render this
The concept is not documentation-only. These are the components that name it in their specification, grouped and stated exactly as the catalog states them.
Also in Foundations
Work with this concept
The calculators that compute it and the ledger payloads that carry it. A definition is where a reader starts; these are where they go next.
- Journal entry for sales tax collectedWhen a taxable sale is made, debit Cash or Accounts receivable for the total charged, credit Revenue for the price and credit Sales tax payable for the tax. When the return is filed, debit Sales tax payable and credit Cash.Entry
- Journal entry for credit card expensesFor each company card charge, debit the expense it paid for and credit Credit card payable. When the statement is paid, debit Credit card payable and credit Cash.Entry
- Journal entry for payrollOn payday, debit Wages and salaries for gross pay, credit Cash for net pay and credit liabilities for everything withheld. Book the employer's own taxes separately — debit Payroll tax expense, credit Payroll taxes payable — and clear both payables when they are remitted.Entry
- Journal entry for a loan repaymentWhen the loan is received, debit Cash and credit Loan payable. Each payment debits Interest expense for the interest portion and Loan payable for the principal portion, and credits Cash for the full payment.Entry
Defined in Lexicon. This page is generated from that document, so the two cannot disagree.