Liability refers to a person or business’s legal responsibility to repay debts or obligations. In financial terms, liabilities include loans, accounts payable, mortgages, and other debts that must be settled over time. Liabilities are recorded on the balance sheet and are an essential part of understanding an entity’s financial health. They are often categorized as either short-term or long-term, depending on the repayment period. Managing liabilities effectively is crucial for financial stability, as excessive liabilities can lead to financial strain and impact creditworthiness.