What is The Main Purpose of Liabilities

The Main or Primary Purpose of Liabilities is to show the amounts of debts due by a business to outsiders / external parties (Accounts Payable / Creditors, Suppliers, Banks and other Financial Institutions) to the business and these are taken in order to run the business operations and to fund the projects when the business has not sufficient resources to meet Expenses and create Assets.

Liabilities include Current Liabilities, Long-Term Liabilities and Contingent Liabilities and these are shown on the Balance Sheet. Liabilities are equal to the Assets minus Equity as shown by below Accounting Equation:

Liabilities = Assets - Equity

The above basic accounting equation shows the relationship exits between liabilities, assets and equity.