Financial obligation

Financial obligation is a commitment your business must settle, usually by paying money, because of a contract, law, or past event. In your accounts it appears as a liability on the balance sheet, shown as current (due in the short term) or non‑current (due later).

Obligations arise from buying on credit, taking loans, leasing, taxes and payroll, or giving guarantees. They differ from expenses: an expense records the cost; a financial obligation is the amount you still owe.

Typical financial obligations for small UK businesses include:

• Trade payables (unpaid supplier invoices)
• Accrued expenses (received but not yet invoiced)
• Tax liabilities such as VAT and payroll taxes
• Loan principal and interest payable
• Lease liabilities for equipment or property
• Customer deposits or deferred income (duty to deliver or refund)
• Provisions for likely outflows, for example warranties