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Business Financials – Liability vs Debt – Learn the difference

images/Business Financials3.jpgWhat is the difference between liability vs debt?

Often, people use liability or debt– they generally mean the same thing, but depends on the situation.

For an example, in the debt-to-equity ratio, debt usually means the total amount of liabilities. In this case, debt includes short-term such as overdrafts and credit cards plus long-term loans and bonds payable, and normally also includes accrued (yet to be paid) 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.

So look further, to know WHAT is being used – be clear!

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