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What Is a Liability?

We’ve covered what an asset is (here), now it’s time to cover liabilities, the other side of the spectrum.

Liabilities, quite simply, are the opposite of assets. Liabilities cost money, whereas assets produce money. However, note that in accounting this is slightly different; assets are a combination of liabilities and owner’s equity, but for our purposes, assets bring money, liabilities take it away.

Let’s demonstrate it with an example; Steve got a pool in his backyard with a loan, that pool costs him money every month, it is a liability. An asset would be a stock that pays Steve dividends monthly, for instance.

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