All economic obligations of business are called Liabilities as defined by SFAC 6 as “future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events” (Para. 35). Whenever a person purchases something on credit he promises to pay for the goods on a future date. This is his obligation to pay cash at a future date and thus it becomes his liability. Liabilities are typically divided into two categories:
- Current Liabilities or Short Term Liabilities
- None-Current or Long Term Liabilities
>>> Read Types of Accounts.