ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -The primary difference between Liability and Debt is that Liability is a wide term that includes all the money or financial obligations the company owes to the other party. In contrast, the debt is the narrow term and is part of the liability arising when the company borrows money from the other party.

Detailed explanation-2: -An obligation is a liability to other arising from past transactions or events, the settlement of which is expected to result in the future sacrifice of economic benefits (i.e. cash payment or provision of service).

Detailed explanation-3: -Liabilities are the legal debts a company owes to third-party creditors. They can include accounts payable, notes payable and bank debt. All businesses must take on liabilities in order to operate and grow. A proper balance of liabilities and equity provides a stable foundation for a company.

Detailed explanation-4: -An obligation always involves another party to whom the obligation is owed. The liability is the entity’s if it embodies a duty or responsibility to others to a future transfer or use of assets, provision of goods or services, or other form of economic settlement.

Detailed explanation-5: -Types of Liabilities. Businesses sort their liabilities into two categories: current and long-term. Current liabilities are debts payable within one year, while long-term liabilities are debts payable over a longer period.