What are liabilities?

What are liabilities?

• A. What is owed.
• B. Assets that are easily converted to cash.
• C. Future income streams.
• D. Money spent monthly.

Answer: (A)

In personal finance, liabilities are obligations you owe to others that you must settle in the future. This includes debt like credit card balances, student loans, a mortgage, or any unpaid bills. They aren’t assets and they reduce your net worth because net worth equals assets minus liabilities. Liquid assets—cash or items easily converted to cash—are not liabilities; they’re part of your assets. Future income streams refer to expected earnings, which are potential assets or income, not obligations. Money spent monthly describes expenses, which are cash outflows, not what you owe.

In personal finance, liabilities are obligations you owe to others that you must settle in the future. This includes debt like credit card balances, student loans, a mortgage, or any unpaid bills. They aren’t assets and they reduce your net worth because net worth equals assets minus liabilities.

Liquid assets—cash or items easily converted to cash—are not liabilities; they’re part of your assets. Future income streams refer to expected earnings, which are potential assets or income, not obligations. Money spent monthly describes expenses, which are cash outflows, not what you owe.