Accounting Dictionary

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Financial Liability

Definition: Under international financial reporting standards,  a financial liability can be either of these two items:

1. A contractual obligation to deliver cash or similar to another entity or a potentially unfavorable exchange of financial assets or liabilities with another entity.
2. A contract probably to be settled in the entity's own equity and that is a nonderivative under which the entity may delivery a variable amount of its own equity instruments, or a derivative that probably will be settled other than through the exchange of cash or similar for a fixed amount of the entity's equity.

Examples of financial liabilities are accounts payable, loans issued by an entity, and derivative financial liabilities.