Liabilities, on a company's balance sheet, a liability is classified as a contractual obligation that the company has, where the settlement of that obligation is expected to result in an outflow of resources from the company. In everyday terms this means you'll have to pay out some money in the future as a result of a transaction that took place in the past, such as paying cash to settle a bank loan. Just like with assets, liabilities are classified as either current, short term or non-current long term. Current liabilities will have to be settled within the next 12 months, and non-current liabilities will not have to be settled within the next 12 months, such as a five year bank loan. From an analysis perspective, it is also useful to separate liabilities into operating and financial liabilities.

Operating liabilities result from the day-to-day operations of the business, and include things like accounts payable, money owed to suppliers for goods bought on credit. Until that bill is settled, it sits on the balance sheet as a payable. Debt is a classic example of a financial liability, money a company has borrowed from a bank or other lender. This liability is created as a result of financing decisions made by management. It's not created by the day-to-day running of the business. Splitting liabilities into operating and financial helps us understand the level of funding provided by operations, for example, from credit given by suppliers and the financing decisions made by management, how much they've decided to borrow from financial institutions and debt investors.