---
title: "Liabilities"
description: "What liabilities are: the definition, current vs non-current liabilities, common examples such as payables, loans and accruals, and how they are recorded."
canonical: https://ledgeriano.com/glossary/liabilities
language: en
publisher: "Ledgeriano"
updated: 2026-11-06
---

# Liabilities

> What liabilities are: the definition, current vs non-current liabilities, common examples such as payables, loans and accruals, and how they are recorded.

Liabilities are present obligations of a business to transfer cash, goods or services because of past events. Typical liabilities are amounts owed to suppliers, bank loans, taxes payable, accrued wages and advances received from customers. They have a credit normal balance and sit on the right side of the balance sheet with equity.

Liabilities are classified as **current** when they are due within twelve months or the operating cycle (trade payables, VAT payable, the current portion of a loan) and **non-current** otherwise (long-term borrowings, lease liabilities, provisions for end-of-service benefits). The split drives liquidity ratios such as the [current ratio](https://ledgeriano.com/glossary/current-ratio).

A liability exists even before an invoice arrives: electricity used in December but billed in January is an [accrued expense](https://ledgeriano.com/glossary/accrued-expense) at year end. Cash received before delivery is also a liability, [deferred revenue](https://ledgeriano.com/glossary/deferred-revenue), until the goods or services are provided.

## Example: recording a bank loan

A company borrows 50,000, repayable in five equal annual instalments. On the day the cash arrives it debits bank 50,000 and credits bank loans 50,000. At the balance sheet date 10,000 is shown as a current liability and 40,000 as non-current.

| Account | Debit | Credit |
| --- | --- | --- |
| Bank | 50,000 |  |
| Bank loans |  | 50,000 |

### Is a loan a liability or an expense?

The loan principal is a liability. Only the interest charged on it is an expense; repaying principal reduces the liability and cash without touching profit.

### Is accounts payable a liability?

Yes. Accounts payable are amounts owed to suppliers for goods and services received on credit, and they are usually the largest current liability of a trading business.

Guide: https://ledgeriano.com/guides/financial-statements