Define a liability in accounting terms.

A liability in accounting terms is defined as an obligation that the company owes to outsiders. This encompasses any debts or financial responsibilities that a company has, such as loans, accounts payable, mortgages, or any other type of obligation that requires the company to transfer economic resources in the future. Liabilities are an essential part of the accounting equation and reflect the company's financial commitments to creditors and suppliers, showcasing the claims on the company’s assets by external parties.

This definition is crucial for understanding a company's financial health, as liabilities represent a company’s potential future sacrifices of economic benefits for the sake of settling debts. Recognizing liabilities is vital for proper financial reporting and analysis, ensuring that all obligations are accounted for when evaluating a company’s performance and liquidity.