A.  Defining Liabilities
Probable future payments of assets or services that a company is presently obligated to make as a result of past transactions or events. Note three crucial factors:

1.   Due to past transaction or event.

2.   Present obligation.

3.   Future payment of assets or services.

B.   Classifying Liabilities

1.   Current liabilities (short-term liabilities)—Obligations due within one year or the company's operating cycle, whichever is longer.

2.   Long‑term liabilities—Obligations not expected to be paid within the longer of one year or operating cycle.

C.   Uncertainties in Liabilities—requires addressing three important questions that are sometime uncertain at the time liability is incurred:

1.   Whom to pay? (Ex. A note “Payable to Bearer”)

2.   When to pay? (Ex. Unearned revenues—may not know when service will be provided to satisfy)

3.   How much to pay? (Ex. Accrued expense that needed to be estimated prior to receipt of bill)