In the business world, the terms “Debt” and “Liability” are used interchangeably and are understood to be the same. But in reality, they differ.

Debt

Debt is the money borrowed by a business entity which is to be repaid to the moneylenders at a future specified date.

For Example,

• Term loans accepted from a bank or financial institutions for business expansion
• Car loan, Home loan, Education loan

Liability

Liability is an obligation to render goods or services or an economic obligation to be discharged off at a future date.

For Example,

• Outstanding payment to suppliers of raw materials
• Outstanding Expenses – accrued rent, outstanding professional fees, outstanding electricity expenses, unpaid salary, etc
• Income received in advance – rent received in advance, commission received in advance, etc
• Bills payable
• Debts accepted by an entity

Key differences between Debt and Liability

Now, let me help you understand the differences between the two terms discussed above, debt and liability.

Conclusion

All debts are liabilities, but not all liabilities are debts.