Definition; Liability is a debt. In other words, this is money or property borrowed by one party known as the borrower from another party known as the lender whereby the amount worth of the property acquired is repaid in the future period. Liabilities are classified into two; long term and short term.

Long term liability is a debt whose principle amount plus interest is repaid for a time period of more than one year. For example, a 5 year bank loan, 10 year bond, debentures etc. This type of debt is also referred to as non-current liabilities.

Short term liability is a debt which is repaid within a period of one year or less. It is also referred to as current liability. These include debts such as bank overdraft, trade creditors, other creditors, income in advance and accrued expenses.