Difference Between Debt & Liabilities

Knowing the differene between debts and liabilities is essential to good accounting.

Simply put: Debt is money owed, while a liability is any number of situations faced by a person or business that has the net effect of lowering the value of that person or business.

Debt Defined

A debt is an amount of money borrowed by one party from another, and that must be paid back.

Examples of Debt

In accounting, loans, bonds and commercial paper are examples of debt.

Liability Defined

Liabilities are a person or company's legal debts or obligations that arise during the course of business operations. Debts are one type of liability. Liabilities are "payable in money, goods or services."

Examples of Liability

In accounting, liabilities include loans, mortgages, accounts payable, accrued expenses and deferred revenues. Outside of accounting, a liability might take many forms, including property taxes, under-performing employees or insurance payments.

Principal Difference

Almost without exception, interest is attached to a debt, but interest may or may not be attached to a liability, depending on the form it takes.

References

• New York State Society of CPAs: Liability Defined