A present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits.

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Debts or obligations a business owes to others. Liabilities can be classified as current (due within one year) or non-current (due after one year). Examples include loans, unpaid invoices, and taxes owed.

Example:

•   Current Liabilities: A company owes £50,000 to its suppliers and £10,000 in unpaid taxes.

•   Non-Current Liabilities: A company has a long-term bank loan of £200,000 due in five years.

Real-Life Scenario:

A retailer has current liabilities of £100,000, including £60,000 owed to suppliers, £20,000 in unpaid salaries, and £20,000 in tax liabilities.

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