Accounting glossary

Liability

What a liability is, the current vs non-current split, and the common SMB liability categories across UK/AU/CA/NZ/SG in 2026.

By ExpenseFlow team
· 18 May 2026

Definition

A liability is an obligation of the business arising from past events, the settlement of which is expected to result in an outflow of economic benefits. It is presented on the balance sheet split between current liabilities (those expected to be settled within 12 months of the balance-sheet date) and non-current liabilities (longer than 12 months). The accounting identity (Assets = Liabilities + Equity) makes liabilities one of the three primary balance-sheet categories.

What a liability means in practice

For a bookkeeper, the liability section of the balance sheet captures everything the business owes to third parties. The dominant categories for most SMBs are short-term: accounts payable (owed to suppliers), accruals (owed but not yet invoiced by suppliers), deferred revenue (owed in service to customers who have paid in advance), tax payable (owed to the tax authority), and any short-term loans or overdrafts. Non-current liabilities for SMBs are typically dominated by long-term bank loans where they exist; many service businesses have no non-current liabilities at all.

The two operational questions about liabilities are: (1) is the balance correct (does it reflect every obligation the business actually has at the date)? and (2) is the current vs non-current split correct (are next-12-month obligations in the right section)? The first question is answered by the routine control-account reconciliations (AP control, accruals review, VAT control). The second is answered by reviewing long-term loan amortisation schedules at year-end and moving the next-12-month portion into current liabilities.

A practical example: a UK consultancy at 31 March 2027. Total liabilities 38,000. Current liabilities: AP 8,000, accruals 3,500, VAT payable 6,500, dividend payable 5,000, total 23,000. Non-current liabilities: a 15,000 director’s loan (no fixed repayment date, classified as non-current under FRS 102), total 15,000. The current vs non-current split shows the business has limited short-term pressure (23,000 of liabilities against 67,000 of current assets, comfortable current ratio).

How liabilities work by country

United Kingdom

FRS 102 Section 17 (provisions and contingencies), Section 11 (financial instruments), and Section 23 (revenue and deferred income) govern most SMB liability categories. Companies Act 2006 governs the disclosure of related-party liabilities and director loans (the latter must be disclosed in the statutory accounts and are subject to section 197 approval requirements above 10,000).

Australia

AASB 137 (provisions), AASB 9 (financial instruments), AASB 15 (revenue) govern the corresponding categories. Corporations Act 2001 governs related-party disclosures. Director loans above AUD 10,000 are subject to Division 7A: they are treated as deemed dividends unless documented as a complying loan agreement with prescribed minimum repayments and interest at the benchmark rate.

Canada

ASPE Section 3110 (provisions and contingencies), Section 3856 (financial instruments) for private companies; IAS 37 and IFRS 9 for IFRS adopters. The CRA’s section 15(2) deemed-shareholder-loan rules apply to closely-held companies: amounts owed by shareholders to the company can be treated as taxable benefits unless repaid within specific time limits.

New Zealand

NZ IAS 37, NZ IFRS 9, NZ IFRS 15 mirror the IFRS standards. Companies Act 1993 governs related-party disclosures. The IRD’s attribution rules can re-characterise certain related-party arrangements for tax.

Singapore

SFRS(I) 37, SFRS(I) 9, SFRS(I) 15 mirror the IFRS standards. The Companies Act and section 162 (loans to directors) govern related-party liabilities. Loans to directors above prescribed limits require specific shareholder approval.

Liabilities are one of the three primary balance-sheet categories:

  • The balance sheet is where liabilities appear.
  • Accounts payable is the largest current liability for most service businesses.
  • Accruals sit alongside AP for liabilities incurred but not yet invoiced.
  • Deferred revenue is the customer-side liability for subscription businesses.
  • Working capital calculations subtract current liabilities from current assets.
  • Equity is the third primary balance-sheet category, complementary to liabilities and assets.

See also

For the balance-sheet category that contains liabilities, see the balance sheet entry.

FAQ

See the answered questions above for the current vs non-current split, common SMB liability categories, and deferred revenue as a liability.

Questions, answered

Common questions

What is the difference between current and non-current liabilities?

Current liabilities are settled within 12 months of the balance-sheet date: accounts payable, accruals, deferred revenue, short-term debt, the current portion of long-term loans, tax payable, dividends payable. Non-current liabilities are longer than 12 months: long-term loans, lease liabilities, deferred tax liabilities, post-employment benefit obligations. The split affects working-capital and current-ratio calculations.

What is the most common liability on an SMB balance sheet?

Accounts payable for most businesses, followed by accruals at period end. VAT/GST payable is the third common category for tax-registered businesses. Deferred revenue is large for subscription businesses. Long-term loans dominate non-current liabilities where they exist; many SMBs have no non-current liabilities at all.

Is deferred revenue a liability?

Yes. Deferred revenue is cash received before the underlying service has been delivered. The business owes the customer the service. Until delivery, the obligation sits as a current liability (or non-current for the portion deliverable beyond 12 months). When delivery happens, the liability releases to revenue on the income statement.

Keep exploring

Balance sheet

A financial statement presenting a snapshot of what a business owns (assets), what it owes (liabilities), and the residual interest of its o

Accounts payable

A current liability on the balance sheet representing money the business owes to suppliers for goods or services received but not yet paid f

Accruals

Expenses incurred or revenue earned in an accounting period but not yet invoiced or paid, recorded in the books to match income and costs to

Deferred revenue

A current liability on the balance sheet representing cash received from a customer for a good or service the business has not yet delivered

Working capital

The difference between current assets and current liabilities on the balance sheet, representing the short-term operating liquidity of the b

Equity

The residual interest of the owners in the assets of a business after deducting all liabilities, comprising share capital, share premium, re

Track liability without spreadsheets

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