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Essential Definitions: Liability

What is current liability and what is long-term liability? Here you can find terms and definitions around the liability topic.

  • Current liabilities – Obligations that a company expects to pay from existing current assets within the coming year.
  • Accounts payable (creditors’) subsidiary ledger – A subsidiary ledger that collects transaction data of individual creditors.
  • Long-term liabilities – Obligations that a company expects to pay after one year.
  • Contingent liability – A potential liability that may become an actual liability in the future.
  • Notes payable – Obligations in the form of written promissory notes.
  • Current ratio – A measure of a company’s liquidity; computed as current assets divided by current liabilities.
  • Employee earnings record – A cumulative record of each employee’s gross earnings, deductions, and net pay during the year.
  • Fees – Payments made for the services of professionals.
  • Full-disclosure principle – Requires that companies disclose all circumstances and events that would make a difference to financial statement users.
  • Gross earnings – Total compensation earned by an employee.
  • Bonus – Compensation to management and other personnel, based on factors such as increased sales or the amount of net income.
  • Net pay – Gross earnings less payroll deductions.
  • Payroll deductions – Deductions from gross earnings to determine the amount of a paycheck.
  • Payroll register – A payroll record that accumulates the gross earnings, deductions, and net pay by employee for each pay period.
  • Pension plan – An agreement whereby an employer provides benefits to employees after they retire.
  • Post-retirement benefits – Payments by employers to retired employees for health care, life insurance, and pensions.
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