Technical definition
A present obligation arising from past events that is expected to require a transfer of economic resources.
How it works
Liabilities arise from supplier credit, employee services already received, taxes, loans or customer prepayments. They are classified by maturity and may require estimates when amount or timing is uncertain.
Everyday example
Receiving a supplier invoice for services already consumed creates an expense and an accounts payable liability.
Common pitfall
Borrowing creates a liability, not an expense; principal repayment reduces the liability, while interest is the expense.