What is Liability?

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. One example is in the case of a crime. The liability of the offending party may include providing restitution for damage to property or paying medical bills in the case of physical injury.

Another example of liability in the legal realm is an automobile accident. The person who caused the accident, through action or omission, is liable to the injured party. Liability insurance exists for just such a purpose. It covers the expenses of the injured party, including damage to the vehicle or other property as well as a certain amount of medical expenses, and may reimburse the injured party for attorney's fees if civil action is required.

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.

Some other examples of liability include money that is yet to be paid out, such as benefits from a life insurance policy or a settlement, either one of which represents a liability for the insurance provider. An employee's pension, as well as any other savings or retirement fund, is also considered a liability for a company. For the consumer, liabilities may include a home mortgage, second mortgage, line of credit, lien of any kind or car payment. Of course, for the entity to which these monies are owed, each item generally represents an asset.

Overall, liability simply describes some form of obligation or responsibility. It represents an outstanding debt, products or services that have yet to be provided, or acknowledgment of responsibility and payment provided for damage caused through actions or negligence.

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Post 9

I am opening a new company. I would like to know how should the company be formed to stop creditors from getting to the funds the new company is making.

(LLc., Corporation, INC., etc.) Thank you, M

Post 7

The pipes in my heater burst and flooded my apartment. The landlord wants me to pay the maintenance man, including overtime, for clearing out the water. Who is liable for the damage costs?

Post 6

Explain liability in terms of accounting in simple terms with a simple example.

Post 5

what does it mean when you say, your car liability is due on 01/08/09

Post 4

I was wondering if anyone has had any success enforcing liability on a school for an injury resulting from unsupervised athletic activity on school grounds.

I got hit in the head from behind with a soccer ball which was kicked by a kid waiting to practice after a game I was watching.

Post 3

what is a business? what are the steps or what factors to be consider in making a business plan? or the process?

Moderator's reply: check out our article, what is a business plan? for more information on writing a business plan.

Post 2

If a homeowner hires a company to put on a deck over their front porch and a new roof and as a result, the roof is not done correctly, there are holes where critters are getting in, it is leaking into the house. They did not flash the deck ledger board and water now comes into the windows and onto a laminate flooring that is getting warped - does Liability insurance cover to have these conditions fixed?

Post 1

I was wondering if your car is stolen is there any coverage only having liability insurance?

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