What is a Liability?

Answer:
A liability is anything you are required to pay,

such as taxes, loan payments, insurance or a mortgage. The total amount of your liabilities is measured against your assets or income to determine the financial health of your business.

The goal is to keep your liabilities as low as possible when compared to your assets but there are times when taking on additional liabilities makes good business sense. Taking out a mortgage on property you own free and clear in order to expand a business operation and bring in additional revenue for example, would be one reason for incurring additional liability.