Business Finance 101 – What is the Difference between Liability and Debt?


 

What is the Difference between Liability and Debt?
What is the Difference between Liability and Debt?

Many times, people use liability and debt when they mean the same thing. As an example in the debt-to-equity ratio, debt means the total amount of liabilities. In this case, debt includes short-term such as overdrafts and credit cards and long-term loans and bonds payable and normally also includes accrued wages and utilities, income taxes due and other liabilities. In other words, sometimes debt is means all obligations… all amounts owed… all liabilities.
However, other times, the word debt is used more narrowly to mean only the formal, written financing contracts such as short-term loans payable, long-term loans payable and bonds payable, example – hire-purchase, equipment finance, etc.
As always, keep in mind to know WHAT is being used – be clear and have it defined!

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