Characteristics of Liability

Characteristics of Liability

Characteristics of liability can be explained in term of present obligation of past event, flow of economic benefit for settlement of liability, measurement of the liability etc. These Characteristics have been briefly explained below

Important Characteristics of Liability

Some important characteristics of liabilities have been discussed below; 

       

1.   Present Obligation of Past Event

First important characteristic of Liability is present obligation of a past event. It means that liability arise due to a past event. Thus there is no concept of future liability and future liabilities are not recorded in books of accounts.

Thus Liability for sales made during the year can be recorded, but liability against the future sales or expected sales cannot be recognized in the books of accounts.

2.   Future Flow for Settlement of Liability

Another important characteristic of liability is requirement of future economic flow for settlement of liability. The economic benefit may flow in different ways like payment through cash, transfer of an asset, by providing some service, replacing the liability, or converting the liability into equity .  

3.   Recognition of Liability

Two important conditions need to be satisfied for liability recognition.

a.    Qualify the definition of liability.
b.Economic benefit will require to settle the liability.

c.    Liability amount can be measured reliably.

4.   Current & Non Current Liabilities

Liabilities can be classified into Current & non current liabilities. This is an important classification of Liabilities. Current liabilities are required to be settled within one year, while non current liabilities may take more than one year for settlement.

5.   List of important Characteristics of liability

Some important characteristics of liability are listed below

1.    Liabilities arise from the past event.

2.    Liability is a present obligation.

3.    Future economic flow for settlement is required to settle the liability.

4.    Liability must be able to measure reliably.