What Are Liabilities in Accounting? Current vs. Long-Term

A liability is something a business owes: money to a supplier or lender, taxes it has collected, or work a client has already paid for. Liabilities are split by when they're due. Those settled within about a year are current, and the rest are long-term (OpenStax also calls them noncurrent). They sit on the balance sheet alongside assets and equity. This page covers the definition, the split and common examples. For bills from suppliers, see what is accounts payable. For the full statement, see what is a balance sheet.

Billed publishes this page. Definitions are quoted from the open textbook OpenStax Principles of Accounting, Volume 1: Financial Accounting (published April 11, 2019; pages revised April 23, 2026), opened on October 30, 2026.

The definition

OpenStax defines a liability as a "probable future sacrifice of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events".

In plain terms, a past event, such as a purchase on credit or a loan, created an obligation the business still has to settle by paying money or doing work.

Current vs. long-term

OpenStax says: "Similar to the accounting for assets, liabilities are classified based on the time frame in which the liabilities are expected to be settled. A liability that will be settled in one year or less (generally) is classified as a current liability, while a liability that is expected to be settled in more than one year is classified as a noncurrent liability."

It defines a long-term liability as a "debt settled outside one year or one operating cycle, whichever is longer".

A single debt can be split. OpenStax notes that "notes payable can be either current or noncurrent". It calls the near-term part the current portion of a note payable, the "portion of a long-term note due during the company’s current operating period".

Common examples

• Accounts payable: the "value of goods or services purchased that will be paid for at a later date". The accounts payable guide covers how it's recorded.
• Notes payable: the "value of amounts borrowed that will be paid in the future with interest".
• Unearned revenue: an "advance payment for a product or service that has yet to be provided by the company; the transaction is a liability until the product or service is provided".
• Taxes payable: a "liability created when a company collects taxes on behalf of employees and customers".
• Longer loans: OpenStax says a business "can borrow money on an intermediate (typically two to four years) or long-term (longer than four years) basis from lenders."

Sample: the liabilities section of a balance sheet

The figures here are a sample, invented for this example. A design studio's balance sheet at December 31 shows:

Current liabilities

1. Accounts payable to suppliers: $3,200
2. Unearned revenue (a client's deposit for work starting in January): $1,500
3. Current portion of an equipment loan (12 months × $200 of principal): $2,400
4. Total current liabilities: $3,200 + $1,500 + $2,400 = $7,100

Long-term liabilities

5. Equipment loan, remaining principal of $9,600 less the $2,400 current portion: $9,600 − $2,400 = $7,200

Total liabilities: $7,100 + $7,200 = $14,300

The loan appears twice because, as OpenStax notes, notes payable "can be either current or noncurrent". The $2,400 due in the next 12 months is the current portion.

Related Articles

• What Is Accounts Payable? A Simple Guide for Small Businesses
• What Is a Balance Sheet? A Simple Guide for Small Business
• What is double-entry bookkeeping? A Detailed Review

Frequently Asked Questions

What is a liability in accounting?

OpenStax defines it as a "probable future sacrifice of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events".

What is the difference between current and long-term liabilities?

OpenStax says: "A liability that will be settled in one year or less (generally) is classified as a current liability, while a liability that is expected to be settled in more than one year is classified as a noncurrent liability."

Is unearned revenue a liability?

Yes. OpenStax defines unearned revenue as an "advance payment for a product or service that has yet to be provided by the company; the transaction is a liability until the product or service is provided".

Can a loan be both a current and a long-term liability?

Yes. OpenStax notes that "notes payable can be either current or noncurrent", and it defines the current portion as the "portion of a long-term note due during the company’s current operating period".

What is taxes payable?

OpenStax defines it as a "liability created when a company collects taxes on behalf of employees and customers".