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What are Liabilities?
In legal terms, the word liability refers to fault. The person who is at fault is liable to another because of his or her actions or failure to act. An example would be in a car accident, the person who is the cause of the accident is the one that is liable for the damages to property and medical bills incurred.
In accounting terms, liability describes an obligation. It refers to money owed to complete a transaction, debt that has yet to be paid, or products or services that have been paid for but have not yet been rendered. There are two general classifications to sum up these types of liability: long term and short term. Long-term describes debt paid out over more than one year, while short-term liability refers to debt paid within a year or less.
Other examples of liabilities include money that is yet to be paid out, such as benefits from a life insurance policy or a claim settlement, either one of which represents a liability to the insurance company.
For the consumer, liabilities may include a home mortgage, second mortgage, line of credit, lien of any kind or car payment.
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