Liability and Assets are the two parts of accounting equation. Liability is always equal to assets of company. Liability is the payable amount to owner and outside. In case when businessman has not taken any loan, all liability will be equal to the capital of that businessman. In second situation when a company has not taken any loan, all share capital will be the liability of company.

In general words,

Total liability = Owner's equity + outside equity


Total liability = Total share capital + Secured loan + unsecured loan + current liability


Capital + Outside liability = Total Assets

Importance of Liabilities

Imagine, you have father and you have three daughters and two son. You are doing a job of accountant in a company. All the family is dependent on you. It is your personal liability to educate your children, to feed your family and care them financial. This personal liability will give you power to live better life in your family. After taking all liability on your shoulders, you will become responsible human being. Like this, liabilities of business makes businessman powerful to take all type of business risk and survive indefinite life span.



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Education : Liability
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