5.1  Basic Concepts of Liability

1. Definition of Liability

A liability is a present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits.

2. Distinction between Liability and Equity

1) All liabilities eventually mature that is means they come due.

2) As creditors, they have financial claims against the business but usually do not have the right to control business operations．

3) The claims of creditors have legal priority over the claims of owners.

3. Classification of Liability

Liabilities can be classified in the Statement of Financial Position as current or non-current liability.