Financial Glossary
Liability (What Counts as a Liability)
A liability is a present obligation a business owes to another party that will be settled by transferring cash, goods, or services in the future. Items considered liabilities include accounts payable, loans and lines of credit, accrued expenses, payroll and taxes owed, customer deposits, and deferred revenue for services not yet delivered. They are recorded on the balance sheet and split into current liabilities, due within a year, and long-term liabilities, due beyond a year.
Problem & Application
Owners often overlook obligations that count as liabilities, such as a guest deposit or a prepaid annual booking that has not yet been earned, which is deferred revenue rather than free cash. For STR and campground operators who collect payment before the stay, treating those advance payments as a liability prevents overstating available funds and avoids cash-flow surprises when bookings are later canceled or refunded.
In Short
If your business owes a future payment or service to someone else, it is almost certainly a liability, and recording it correctly keeps your balance sheet honest.