{"id":4508,"date":"2018-06-20T16:22:21","date_gmt":"2018-06-20T20:22:21","guid":{"rendered":"https:\/\/www.sage.com\/en-us\/blog\/?p=4508"},"modified":"2025-07-17T14:33:06","modified_gmt":"2025-07-17T18:33:06","slug":"what-are-liabilities","status":"publish","type":"post","link":"https:\/\/www.sage.com\/en-us\/blog\/what-are-liabilities\/","title":{"rendered":"Don\u2019t let liabilities destroy your business"},"content":{"rendered":"<header class=\"entry-header has-dark-background-color entry-header--has-illustration entry-header--has-illustration--generic\">\n\t<div class=\"container\">\n\t\t<div class=\"entry-header__row row align-center\">\n\t\t\t<div class=\"col col-lg-7 col-xlg-6 entry-header__content\">\n\t\t\t\t\t\t\t<div class=\"component component-single-header\">\n\t\t\t\t\t\t\t\t\t\t<div class=\"entry-header__misc text--subtitle text--uppercase text--small\">\n\t\t\t\t\t\t\t<a href=\"https:\/\/www.sage.com\/en-us\/blog\/category\/money-matters\/\" class=\"entry-header__link\">Money Matters<\/a>\t\t\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t<div class=\"entry-title-wrapper\">\n\t\t\t\t\t<h1 class=\"entry-title\">\n\t\t\t\t\t\tDon\u2019t let liabilities destroy your business\t\t\t\t\t<\/h1>\n\t\t\t\t<\/div>\n\n\t\t\t\t\t\t\t\t\t<p class=\"entry-header__description\">\n\t\t\t\t\t\t\t\t\t\t\t<\/p>\n\t\t\t\t\n\t\t\t\t\n\t\t\t\t\n\t\t\t<\/div>\n\n\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t<\/div>\n\t\t<div class=\"single-post-details container\">\n\t\t<div class=\"col\">\n\t\t\t<span class=\"posted-on \"><time class=\"entry-date published\" datetime=\"2018-06-20T16:22:21-04:00\">June 20, 2018<\/time><\/span><span class=\"reading-time\"> min read<\/span>\n\t\t<button\n\t\t\ttype=\"button\"\n\t\t\tclass=\"social-share-button button button--icon button--secondary js-social-share-button\"\n\t\t\tdata-share-title=\"Don\u2019t let liabilities destroy your business\"\n\t\t\tdata-share-url=\"https:\/\/www.sage.com\/en-us\/blog\/what-are-liabilities\/\"\n\t\t\tdata-share-text=\"Please read this interesting article\"\n\t\t>\n\t\t\t<span class=\"social-share-button__share-label\">Share<\/span>\n\t\t\t<span class=\"social-share-button__copy-label\" hidden>Copy Link<\/span>\n\t\t\t<span class=\"social-share-button__copy-tooltip\" aria-hidden=\"true\" hidden>Copied<\/span>\n\t\t<\/button>\n\n\t\t\t\t<\/div>\n\t<\/div>\n\t<\/header>\n\n\n\n<div class=\"wp-block-post-author has-dark-background-color alignfull\">\n\t<div class=\"container\">\n\t\t<div class=\"col\">\n\t\t\t\t\t\t\t<div class=\"co-authors\">\n\t\t\t\t\t\n\t\t<div class=\"entry-author-wrapper\">\n\t\t\t<a class=\"entry-author\" href=\"https:\/\/www.sage.com\/en-us\/blog\/author\/keirthomasbryant\/\">\n\t\t\t\t<img loading=\"lazy\" decoding=\"async\" width=\"40\" height=\"40\" src=\"https:\/\/www.sage.com\/en-us\/blog\/wp-content\/uploads\/sites\/2\/2025\/04\/Keir-350x350.jpg\" class=\"entry-author__image\" alt=\"Keir Thomas-Bryant\" srcset=\"https:\/\/www.sage.com\/en-us\/blog\/wp-content\/uploads\/sites\/2\/2025\/04\/Keir-350x350.jpg 350w, https:\/\/www.sage.com\/en-us\/blog\/wp-content\/uploads\/sites\/2\/2025\/04\/Keir.jpg 600w\" sizes=\"auto, (max-width: 40px) 100vw, 40px\" \/>\t\t\t\t<span class=\"entry-author__name\">Keir Thomas-Bryant<\/span>\n\t\t\t<\/a>\n\n\t\t\t\t\t<\/div>\n\n\t\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t<\/div>\n<\/div>\n\n\n\n\n\n<p>Knowing what a liability is and how it functions in the accounting process is necessary to properly manage the <a href=\"https:\/\/www.sage.com\/en-us\/\" target=\"_blank\" rel=\"noopener noreferrer\">financials<\/a> of any business.<\/p>\n\n\n\n<p>\u201cToo often business owners fail to take the time to review their <a href=\"https:\/\/www.sage.com\/en-us\/blog\/glossary\/what-are-liabilities\/\" target=\"_blank\" rel=\"noopener noreferrer\">liabilities<\/a>,\u201d says Roger Knecht, President of <a href=\"https:\/\/universalaccountingschool.com\/tag\/roger-knecht\/\" target=\"_blank\" rel=\"noopener noreferrer\">Universal Accounting Center<\/a>, which offers small business accounting training. \u201cThere are opportunities to limit the risk and liabilities in business with just a little time and attention\u201d<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-w-hat-are-liabilities\">W<strong>hat are liabilities?<\/strong><\/h2>\n\n\n\n<p>A liability is a debt or something owed to other people or organizations. You can turn this around and say that a liability is a claim against your business from these other people or organizations. This is how accountants often refer to liabilities.<\/p>\n\n\n\n<p>The other type of claim on a typical business comes from you (and\/or your shareholders) as equity within the business. Putting this and liabilities together into a simple equation forms the basis for accounting practices and procedures:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><em>Assets = Liabilities + Owner\/Shareholder Equity<\/em><\/li>\n<\/ul>\n\n\n\n<p>With a little math we can switch this around to highlight the role and importance of liabilities:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><em>Liabilities = Assets \u2013 Owner\/Shareholder Equity<\/em><\/li>\n<\/ul>\n\n\n\n<p>As mentioned, a liability is anything your company owes, and typically this is money. Owing money to somebody or something is considered undesirable in our personal lives, although perhaps unavoidable. But every business has at least a handful of liabilities on an ongoing basis. It\u2019s a normal part of how things work and it\u2019d be almost impossible for a business to exist without them.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-examples-of-liabilities\">Examples of liabilities<\/h2>\n\n\n\n<p>\u201cOrganizing the liabilities in business helps them become manageable,\u201d continues Knecht. \u201cYou\u2019ll be amazed the insights that will come as you look at them accordingly.&nbsp;There is a difference between \u201cmust haves\u201d and \u201cwants.\u201d<\/p>\n\n\n\n<p>Examples of liabilities might include:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Employee wages and benefits<\/li>\n\n\n\n<li>Taxes<\/li>\n\n\n\n<li>Insurance<\/li>\n\n\n\n<li>Accounts payable (e.g. buying stock with a 30-day payment term)<\/li>\n\n\n\n<li>Debts accrued through the regular business operation<\/li>\n<\/ul>\n\n\n\n<p>Understanding the different types of liabilities in accounting is essential for smart business management. There are two main categories:<\/p>\n\n\n\n<ol class=\"wp-block-list\">\n<li><strong>Short-term liabilities<\/strong>: Also called \u201ccurrent liabilities,\u201d these are the monetary obligations of your business that are expected to be paid off soon \u2013 and at most within the normal cycle of a business, such as one year. Things like payroll, utilities and any short-term debt are considered short-term liabilities. Short-term liabilities will probably account for the largest share of your overall liabilities.<\/li>\n\n\n\n<li><strong>Long-term liabilities<\/strong>: Also called \u201cnon-current liabilities,\u201d this serves as a catch-all for everything else. It, therefore, includes liabilities not intended to be paid off in the short-term. Long-term liabilities often relate to fixed assets, such as purchases to grow your business. Things like mortgages are considered long-term liabilities.<\/li>\n<\/ol>\n\n\n\n<p>Knecht explains: \u201cIt\u2019s important for companies to first separate which liabilities are due or expected to be paid-in-full within the fiscal year of the business vs. those that will be paid-in-full years from now. Prioritizing which liabilities to pay down first is important but this is the first step, knowing which each is.\u201d<\/p>\n\n\n\n<p>Having the right <a href=\"https:\/\/www.sage.com\/en-us\/accounting-software\/\">accounting tools<\/a> and an up-to-date <a href=\"https:\/\/www.sage.com\/en-us\/blog\/chart-of-accounts\/\" target=\"_blank\" rel=\"noreferrer noopener\">chart of accounts<\/a> at your disposal can help you stay on top of your liability commitments. You won\u2019t need to spend time performing administrative tasks like reconciling your bank statements; match every transaction and commitment automatically so you can spend more time growing your business.<\/p>\n\n\n\n<p>Because a liability is always something owed, it is always considered payable to some entity. Liabilities in accounting are generally expressed as a \u201cpayable\u201d alongside various qualifying terms.<\/p>\n\n\n\n<p>Common short-term liabilities examples include:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Accounts payable<\/strong>: Debts owed to suppliers of goods or services<\/li>\n\n\n\n<li><strong>Income taxes payable:<\/strong> Income taxes owed to the government<\/li>\n\n\n\n<li><strong>Payroll taxes payable<\/strong>: Taxes owed specifically on the wages of employees<\/li>\n\n\n\n<li><strong>Sales taxes payable<\/strong>: Taxes paid by customers which the company then owes to the relevant taxing authority<\/li>\n\n\n\n<li><strong>Wages payable<\/strong>: Debts owed to employees for their work<\/li>\n<\/ul>\n\n\n\n<p>Common long-term liabilities examples include<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Bonds payable<\/strong> \u2013 typically issued to finance large-scale projects and set to fully mature and be paid in a&nbsp;number of years<\/li>\n\n\n\n<li><strong>Accrued expenses<\/strong> \u2013 if expected to be settled in excess of one year<\/li>\n\n\n\n<li><strong>Deferred taxes<\/strong> \u2013 if expected to be settled in excess of one year<\/li>\n\n\n\n<li><strong>Loan payments<\/strong> \u2013 owed to the creditor of a major asset purchased, like machinery<\/li>\n\n\n\n<li><strong>Mortgage payments<\/strong> \u2013 owed to the creditor of property purchased<\/li>\n<\/ul>\n\n\n\n<p>Keep in mind: the categorization of liabilities as short or long term depends on how quickly the debt is paid off. For example, a large loan or mortgage overall is typically considered a long-term liability since it may stretch for a number of years. However, the monthly payments due on such a loan are considered short-term liabilities.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-liabilities-vs-expenses\">Liabilities vs. expenses<\/h2>\n\n\n\n<p>It\u2019s important to understand the differences between liabilities and expenses from an accounting perspective. Unfortunately, it can get confusing since\u2014on the surface\u2014liabilities and expenses are both associated with spending.<\/p>\n\n\n\n<p>\u201cAn expense is something consumed,\u201d explains Knecht. \u201cA liability is something owed regardless&nbsp;if&nbsp;it has been used or not.\u201d<\/p>\n\n\n\n<p>In other words, the key is in determining what you are paying for and what purpose it serves.<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Expenses<\/strong>: These are your company\u2019s costs of operation\u2014that is, the costs incurred through revenue production in the everyday running of the business. In other words, expenses serve to generate revenue. Because they\u2019re tied to revenue generation, their metrics are used to determine net income. Therefore, they appear on the income statement where they\u2019re displayed against revenue.<\/li>\n\n\n\n<li><strong>Liabilities<\/strong>: The money you owe for the purchase of assets\u2014tangible things you will own when the liability is settled. In other words, liabilities serve to gain assets. Because they\u2019re tied to assets, and their metrics are used to determine equity, they appear on the balance sheet.<\/li>\n<\/ul>\n\n\n\n<p>Here\u2019s an example. If you purchase a company car with a loan, that is considered a liability. Though you may use the car to travel to sales calls and generate revenue, you will ultimately own the car\u2014the car will become an asset. But if you decided to lease that same car, it typically will be considered an expense. Its ultimate purpose would be to generate revenue. Upon the lease completion, you will not own the car\u2014you won\u2019t have gained an asset. (There are some important caveats relating to the type of lease used but for our purposes this example holds true.)<\/p>\n\n\n\n<p><strong>Running a business can be challenging and some of the main issues are the amount of jargon you need to understand and administrative work that drains your productivity. Download our guide to learn how to effectively boost your productivity as a small business owner.<\/strong><\/p>\n\n\n\n\n<div class=\"single-cta\">\n\t<div class=\"single-cta__positioner\">\n\t\t<div class=\"single-cta__wrapper has-dark-background-color\">\n\t\t\t<div class=\"single-cta__content\">\n\t\t\t\t\t\t\t\t<h2 class=\"single-cta__title h3\">Subscribe to our Sage Advice Newsletter<\/h2>\n\n\t\t\t\t\t\t\t\t\t<div class=\"single-cta__description\">\n\t\t\t\t\t\t<p>Get our latest business advice delivered directly to your inbox.<\/p>\n\t\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t<a\n\t\t\t\t\t\thref=\"#gate-ab515c6e-7e90-4c2f-a67e-113872516e8b\"\n\t\t\t\t\t\tclass=\"single-cta__button button button--primary\"\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t>Subscribe<\/a>\n\t\t\t\t\t\t\t<\/div>\n\n\t\t\t\t\t<\/div>\n\n\t\t\t\t\t<img decoding=\"async\" width=\"1440\" height=\"810\" src=\"https:\/\/www.sage.com\/en-us\/blog\/wp-content\/uploads\/sites\/2\/2022\/04\/GettyImages-1073797282-1440x810.jpg\" class=\"single-cta__image\" alt=\"Working from home with tea in hand\" loading=\"lazy\" srcset=\"https:\/\/www.sage.com\/en-us\/blog\/wp-content\/uploads\/sites\/2\/2022\/04\/GettyImages-1073797282-1440x810.jpg 1440w\" sizes=\"auto, (min-width: 48em) 33vw, 100vw\" \/>\t\t\t<\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>Knowing what a liability is and how it functions in the accounting process is necessary to properly manage the financials of any business. \u201cToo often business owners fail to take the time to review their liabilities,\u201d says Roger Knecht, President of Universal Accounting Center, which offers small business accounting training. \u201cThere are opportunities to limit [&hellip;]<\/p>\n","protected":false},"author":280,"featured_media":3750,"menu_order":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_sage_video":false,"post_featured_image_hide":false,"sage_hide_published_date":false,"sage_hide_read_time":false,"sage_hide_share_buttons":false,"footnotes":""},"categories":[43],"tags":[170,299],"business_type":[40],"lilypad":[],"context":[],"industry":[],"persona":[96,97],"imagine_tag":[230,231],"coauthors":[542],"class_list":["post-4508","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-money-matters","tag-business-strategy","tag-cash-flow","business_type-small-business"],"sage_meta":{"region":"en-us","author_name":"Keir Thomas-Bryant","featured_image":"https:\/\/www.sage.com\/en-us\/blog\/wp-content\/uploads\/sites\/2\/2018\/03\/TaxPrepforSmallBusinesses.jpg","imagine_tags":{"230":"Small business","231":"Start up business"}},"distributor_meta":false,"distributor_terms":false,"distributor_media":false,"distributor_original_site_name":"Sage Advice US","distributor_original_site_url":"https:\/\/www.sage.com\/en-us\/blog","push-errors":false,"_links":{"self":[{"href":"https:\/\/www.sage.com\/en-us\/blog\/api\/wp\/v2\/posts\/4508","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.sage.com\/en-us\/blog\/api\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.sage.com\/en-us\/blog\/api\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.sage.com\/en-us\/blog\/api\/wp\/v2\/users\/280"}],"replies":[{"embeddable":true,"href":"https:\/\/www.sage.com\/en-us\/blog\/api\/wp\/v2\/comments?post=4508"}],"version-history":[{"count":0,"href":"https:\/\/www.sage.com\/en-us\/blog\/api\/wp\/v2\/posts\/4508\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.sage.com\/en-us\/blog\/api\/wp\/v2\/media\/3750"}],"wp:attachment":[{"href":"https:\/\/www.sage.com\/en-us\/blog\/api\/wp\/v2\/media?parent=4508"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.sage.com\/en-us\/blog\/api\/wp\/v2\/categories?post=4508"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.sage.com\/en-us\/blog\/api\/wp\/v2\/tags?post=4508"},{"taxonomy":"business_type","embeddable":true,"href":"https:\/\/www.sage.com\/en-us\/blog\/api\/wp\/v2\/business_type?post=4508"},{"taxonomy":"lilypad","embeddable":true,"href":"https:\/\/www.sage.com\/en-us\/blog\/api\/wp\/v2\/lilypad?post=4508"},{"taxonomy":"context","embeddable":true,"href":"https:\/\/www.sage.com\/en-us\/blog\/api\/wp\/v2\/context?post=4508"},{"taxonomy":"industry","embeddable":true,"href":"https:\/\/www.sage.com\/en-us\/blog\/api\/wp\/v2\/industry?post=4508"},{"taxonomy":"persona","embeddable":true,"href":"https:\/\/www.sage.com\/en-us\/blog\/api\/wp\/v2\/persona?post=4508"},{"taxonomy":"imagine_tag","embeddable":true,"href":"https:\/\/www.sage.com\/en-us\/blog\/api\/wp\/v2\/imagine_tag?post=4508"},{"taxonomy":"author","embeddable":true,"href":"https:\/\/www.sage.com\/en-us\/blog\/api\/wp\/v2\/coauthors?post=4508"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}