# Total Liabilities: Definition, Types, and How to Calculate

> **Definition**
>
> Total liabilities are all the financial obligations owed by one party to another individual or entity that haven’t yet been paid.

## What Are Total Liabilities?

Everything that a company or individual owns is classified as assets. Everything the company or individual owes for payment toward future obligations and as liens against those and other assets are liabilities. Total assets minus total liabilities equals equity. Equity can be negative if total liabilities exceed the value of the assets.

### Key Takeaways

*   Total liabilities are generally broken down into three categories: short-term, long-term, and other liabilities.
*   Total liabilities plus equity must equal total assets on a company's balance sheet.
*   Liabilities consist of many items ranging from monthly lease payments to utility bills, bonds issued to investors, and credit card debt.
*   Liabilities can be either short-term or long-term depending on whether they're due in less than a year or more.

![Total Liabilities](https://www.investopedia.com/thmb/7oUiwf9lKzQQMEPintX2mXRG5Qg=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/TermDefinitions_totalliabilities-6a7deaeb563940febcfd2ff3b59782e3.jpg)

*Add up all the debts on which you must regularly make payment and you'll arrive at your total liabilities. — Investopedia / Tara Anand*

## Understanding Total Liabilities

[Liabilities](https://www.investopedia.com/terms/l/liability.asp) can be described as an obligation between one party and another that has not yet been completed or paid for. They are settled over time through the transfer of economic benefits, including money, goods, or services.

Liabilities consist of many items ranging from monthly lease payments to utility bills, [bonds](https://www.investopedia.com/terms/b/bond.asp) issued to investors and [corporate credit card](https://www.investopedia.com/terms/b/business-credit-card.asp) debt. Money received by an individual or company for a service or product that has yet to be provided or delivered, otherwise known as [unearned revenue](https://www.investopedia.com/terms/u/unearnedrevenue.asp)**,** is also recorded as a liability because the revenue has still not been earned and represents products or services owed to a customer. 

Future pay-outs on things such as pending lawsuits and product warranties must be listed as liabilities, too, if the contingency is likely and the amount can be reasonably estimated. These are referred to as [contingent liabilities](https://www.investopedia.com/terms/c/contingentliability.asp). 

## Types of Liabilities

On the balance sheet, a company's total liabilities are generally split up into three categories: [short-term](https://www.investopedia.com/terms/c/currentliabilities.asp), [long-term](https://www.investopedia.com/terms/l/longtermliabilities.asp), and other liabilities. Total liabilities are calculated by summing all short-term and long-term liabilities, along with any [off-balance sheet](https://www.investopedia.com/terms/o/off-balance-sheet-obs.asp) liabilities that corporations may incur. Balance sheets that show a percentage as well as a numerical value are known as [common-size balance sheets](https://www.investopedia.com/terms/c/commonsizebalancesheet.asp).

### Short-term Liabilities

Short-term, or current liabilities, are liabilities that are due within one year or less. They can include payroll expenses, rent, and [accounts payable](https://www.investopedia.com/terms/a/accountspayable.asp) (AP), money owed by a company to its customers.

Because payment is due within a year, investors and analysts are keen to ascertain that a company has enough [cash](https://www.investopedia.com/terms/c/cash.asp) on its books to cover its short-term liabilities.

### Long-term Liabilities 

Long-term liabilities, or [noncurrent liabilities](https://www.investopedia.com/terms/n/noncurrent-liabilities.asp), are debts and other non-debt financial obligations with a [maturity](https://www.investopedia.com/terms/m/maturity.asp) beyond one year. They can include [debentures](https://www.investopedia.com/terms/d/debenture.asp), loans, [deferred tax liabilities](https://www.investopedia.com/terms/d/deferredtaxliability.asp), and pension obligations.

Less [liquidity](https://www.investopedia.com/terms/l/liquidity.asp) is required to pay for long-term liabilities as these obligations are due over a longer timeframe. Investors and analysts generally expect them to be settled with assets derived from future [earnings](https://www.investopedia.com/terms/e/earnings.asp) or financing transactions. One year is generally enough time to turn [inventory](https://www.investopedia.com/terms/i/inventory.asp) into cash.

### Other Liabilities

When something in [financial statements](https://www.investopedia.com/terms/f/financial-statements.asp) is referred to as “other” it typically means that it is unusual, does not fit into major categories and is considered to be relatively minor. In the case of liabilities, the “other” tag can refer to things like intercompany borrowings and [sales taxes](https://www.investopedia.com/terms/s/salestax.asp).

Investors can discover what a company’s other liabilities are by checking out the [footnotes in its financial statements](https://www.investopedia.com/terms/f/footnote.asp).

## Advantages of Total Liabilities

In isolation, total liabilities serve little purpose, other than to potentially compare how a company’s obligations stack up against a competitor operating in the same sector.

However, when used with other figures, total liabilities can be a useful [metric](https://www.investopedia.com/terms/m/metrics.asp) for analyzing a company's operations. One example is in an entity's [debt-to-equity](https://www.investopedia.com/terms/d/debtequityratio.asp) ratio. Used to evaluate a company's financial [leverage](https://www.investopedia.com/terms/l/leverage.asp), this ratio reflects the ability of [shareholder equity](https://www.investopedia.com/terms/s/shareholdersequity.asp) to cover all outstanding debts in the event of a business downturn. [A similar ratio](https://www.investopedia.com/ask/answers/021215/what-good-debt-ratio-and-what-bad-debt-ratio.asp) called [debt-to-assets](https://www.investopedia.com/terms/t/totaldebttototalassets.asp) compares total liabilities to total assets to show how assets are financed.

## Special Considerations

A larger amount of total liabilities is not in and of itself a financial indicator of poor economic quality of an entity. Based on prevailing [interest rates](https://www.investopedia.com/terms/i/interestrate.asp) available to the company, it may be most favorable for the business to acquire debt assets by incurring liabilities. 

However, the total liabilities of a business have a direct relationship with the [creditworthiness](https://www.investopedia.com/terms/c/credit-worthiness.asp) of an entity. In general, if a company has relatively low total liabilities, it may gain favorable interest rates on any new debt it undertakes from lenders, as lower total liabilities lessen the chance of [default risk](https://www.investopedia.com/terms/d/defaultrisk.asp).