what is liablity

What is liability?

Liability is a present obligation that is resulted from the past event which settlement require outflow of resources.

What is Present Obligation?

Present obligation is obligation that entity is currently liable to pay. For example Mr. A purchase of USD $ 200 in past is current liability of the entity and therefore it is present obligation.

What is Past Event?

A past event is an event which has already occurred.  A future event does not give rise to a Liability. For example an organization planning to take a long in next month does not come under the definition of liability.

What is outflow of resource?

Liability settlement must require outflow of resources. For example a customer has a warranty claim but organization believes that organization will win the case and therefore there is no liability arises because there is not expected outflow of resources.