Obligation

What is an Obligation?

An obligation in accounting refers to a company's duty to settle past transactions or events by providing assets, delivering services, or carrying out predefined actions either legally or contractually. Obligations are typically recorded as liabilities on a company's balance sheet and influence financial planning and risk management strategies.

Short Description: A liability or duty that a business or individual is legally or contractually bound to fulfill.

• Current Obligations: Obligations expected to be settled within the operating cycle or one year.
• Long-term Obligations: Obligations that are due after a period exceeding one year.
• Legal Obligations: Duties arising from legal agreements or legislative requirements.
• Contractual Obligations: Duties established by contracts with other parties.

Understanding obligations is crucial for ensuring a company's long-term solvency and maintaining stakeholder confidence.