In accounting, what does "liability" refer to?

Liability in accounting refers specifically to obligations or debts that a company owes to outside parties. This can include loans, accounts payable, mortgages, and any other forms of debt that require the company to settle these amounts in the future. Understanding liabilities is crucial for assessing a company’s financial health, as they play a pivotal role in a company's balance sheet. By identifying the liabilities, stakeholders can gauge the company’s obligations and its ability to meet them, impacting decisions related to investments, creditworthiness, and overall financial stability. The other options relate to different elements of financial statements: assets are what a company owns, shareholders' equity represents the owners' residual claim after liabilities are deducted from assets, and revenue pertains to income generated from operations, none of which define liabilities.