liability

Vocabulary Word

Definition

In simple terms, a 'liability' is a responsibility or obligation. Much like when you borrow money from a friend and you're responsible to pay it back, in business too, a liability reflects an amount that a business owes.

Examples in Different Contexts

In accounting, 'liabilities' are amounts owed by a business to others. An accountant might clarify, 'Our company's total liabilities include loans, unpaid invoices, and other financial obligations.'

Practice Scenarios

Law

Scenario:

The lawsuit might expose us if we don't demonstrate our due diligence. I recommend we review our compliance measures.

Response:

Understanding potential liabilities will help us create a strategic plan of action. Legal consultation is crucial.

Insurance

Scenario:

Our next insurance policy needs to cover potential risks posed by our new machinery. We must seek comprehensive coverage.

Response:

Getting a comprehensive policy that extends our liability coverage is indeed the best course of action.