Difference Between Debt And Liability

Difference Between Debt And Liability

The major dissimilarities or difference between debt and liabilities can be highlighted as follows:

1. Introduction

Debt: Amount of money borrowed by an individual or a company that should be paid after a certain period with interest.

Liability: Financial obligation (may be debt or not) that should be paid off in the near future.

2. Refers To

Debt: Borrowing of money for a specific period of time

Liability: Economics obligations

3. Scope

Debt: It has a narrower scope than liability because all liabilities are not debt.

Liability: It has a broader scope because because all debts are liabilities

4. Flexibility

Debt: It is less flexible than liability because amount of debt and period of payment are certain.

Liability: It is more flexible than debt

5. Ratio Analysis

Debt: Leverage ratios are calculated in order to measure the debt condition of the company

Liability: Liquidity ratios are calculated to measure the condition of liability and ability to pay.

6. Borrowed From

Debt : Debts are borrowed from banks and other financial institutions to raise capital

Liability: Generally from suppliers and creditors.

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Difference Between Assets And Liabilities

Difference Between Debt And Equity

7. Interest Bearing

Debt: Yes, it bears fixed rate of interest

Liability: Not compulsory (some liabilities may not bear interest)

8. Example

Debt: Mortgage, long-term bank loan etc. are examples of debt

Liability: Unpaid wages, tax liabilities, short term borrowings etc, are some examples of liability.

Debt Vs Liability (Comparison Chart)

Basis	Debt	Liability
Introduction	Borrowed money that should be paid after specific period with fixed rate of interest	Financial obligation of a firm that should be paid off
Refers To	Borrowings	Economics obligations
Scope	Limited	Wider
Flexibility	Less	More
Ratio Analysis	Leverage Ratios	Liquidity Ratios
Taken From	Financial Institutions	Suppliers/Creditors
Interest	Bears interest	May or may not bear
Examples	Mortgage, bank loan etc.	Short term borrowing, unpaid wages etc.

I hope this post is helpful to understand the difference between debt and liability and to make comparison between them.