Any claim for money against the assets of a business firm is called liability. Liability is a financial obligation of an enterprise other than owner’fund. Liabilities is a legal debits of the firm. It means that the firm has to settle the liability either after paying money or render services or to transfer the goods to another person or persons either now or in future.
Basically, liabilities are source of funds for the business firm. For example:- a firm purchases goods on credit. In this case the firm is being funded by creditor. But the firm has to settle the account of creditor whenever firm is able to make arrangement for funds i.e. after selling the goods or collection from debtors etc. In this case the creditor is a liability.
Bills payable, secured loans, unsecured loans, bank overdrafts, sundry creditors, debenture redemption, expenses payables, interest payable on loans, various types of tax payable, provision for contingent liabilities are the example of claim against assets of the business firm. Though the share capital is also shown in liability side of balance sheet but it has no claim on the assets of a company, unless the company goes into liquidation.
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