Definition of Liability
In accounting and bookkeeping, the term liability refers to a company's obligation arising from a past transaction.
Examples of Liabilities
A few of the more common types of liabilities include:
- Accounts payable
- Loans or notes payable
- Accrued expenses payable
- Deferred revenues
- Bonds payable
- Income taxes payable and deferred income taxes
Definition of Debt
When some people use the term debt , they are referring to all of the amounts that a company owes. In other words, they use the term debt to mean total liabilities .
Others use the term debt to mean only the formal, written loans and bonds payable.
Examples of Debt
As an example of debt meaning the total amount of a company's liabilities, we look to the debt-to-equity ratio . In the calculation of that financial ratio, debt means the total amount of liabilities (not merely the amount of short-term and long-term loans and bonds payable).
Others use the word debt to mean only the formal, written financing agreements such as short-term loans payable, long-term loans payable, and bonds payable.
This is a good reminder that people have different perspectives and understandings of accounting terms.
