How is a liability defined?

A liability is defined as an amount owed by a business. This encompasses any obligations that the company is required to settle in the future, typically through the transfer of economic benefits, such as money or services. Liabilities can include loans, accounts payable, mortgages, and any other forms of debt. Understanding liabilities is crucial in financial accounting, as they represent what the company owes to other parties, reflecting the financial health and obligations of the business.

The other definitions provided relate to different aspects of financial statements. An asset owned by the business refers to what the company possesses that can provide future economic benefits. A claim against a company's assets implies a legal right to the assets, which is a more specific interpretation of a creditor's position rather than a broad definition of a liability. An increase in equity relates to ownership in the business, typically reflecting contributions from owners or retained earnings, which are not synonymous with liabilities. Thus, while they are all relevant financial concepts, only the definition regarding amounts owed accurately describes a liability.