What is the difference between liability and debt?

Definition of Liability

In accounting and bookkeeping, the term liability refers to a company's obligation arising from a past transaction.

Examples of Liabilities

A few of the more common types of liabilities include:

  • Accounts payable
  • Loans or notes payable
  • Accrued expenses payable
  • Deferred revenues
  • Bonds payable
  • Income taxes payable and deferred income taxes

Definition of Debt

When some people use the term debt, they are referring to all of the amounts that a company owes. In other words, they use the term debt to mean total liabilities.

Others use the term debt to mean only the formal, written loans and bonds payable.

Examples of Debt

As an example of debt meaning the total amount of a company's liabilities, we look to the debt-to-equity ratio. In the calculation of that financial ratio, debt means the total amount of liabilities (not merely the amount of short-term and long-term loans and bonds payable).

Others use the word debt to mean only the formal, written financing agreements such as short-term loans payable, long-term loans payable, and bonds payable.

This is a good reminder that people have different perspectives and understandings of accounting terms.

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