Liabilities defintion

swirlywirly

Can anbody put this into english for me please?? It's part of the liabilities definition and at the moment is a string of (mostly) meaningless words!

"The settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits"

I have no chance of remembering any of these definitions if I don't understand them in the first place!

A-Vic

Liabilities – a present obligation of the entity arising from past events, the settlement of which is expected to results in an outflow from the entity of resources embodying economic benefits.

swirlywirly

Yeah but what does that last bit mean? it's wrote too fancy for me to understand, that's what I meant.

A-Vic

a liabilty as something that you owe defined as an obligation arising from a past event for example you may have bought some furniture but you dont have to start paying for it untill next year so for the time being what you owe is an obligation ie. a liabilty

A-Vic

Any better?

swirlywirly

Well I know what a liability is - something that is owed, etc., I just don't understand the way they have worded that last part:

"The settlement of which is expected to result in an outflow" - I get that bit, because you settle it by repayment, therefore an outflow.

"from the entity of resources embodying economic benefits" - what?! Total blank here.

It might just be me being thick.

A-Vic

swirlywirly wrote: »

Well I know what a liability is - something that is owed, etc., I just don't understand the way they have worded that last part:

"The settlement of which is expected to result in an outflow" - I get that bit, because you settle it by repayment, therefore an outflow.

"from the entity of resources embodying economic benefits" - what?! Total blank here.

It might just be me being thick.

Well when you pay off a liaiblity it eats up all your money thats all its saying Entity of resources being money, embodying as in taking over, econmic benefits being the money made - so

you may have made a large amount of money during the year however your s liabilities (look at your balance sheet) may match the money made, as in embodying (eating up) the Assets(balance sheet again). sorry thats the only way i can think of explaning it

A-Vic

or even its saying the larger your liabilities the smaller your assets are getting in the statement of financial position (balance sheet)

Bookworm55

"Resources embodying economic benefits" could be read as "valueable things", as in "things which can have a value attached to them". Check the precise definiton of asset and you'll find the same phrase.

"The settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits"

What they're trying to do is be as inclusive as possible with their definition. Usually, liabilities are settled with cash, and that works well for most business with relatively common liabilities: debtors, tax, bank loans for instance.

You could imagine a time where you settle a liability by giving up an asset. Or strictly speaking, giving up an asset other than cash. Or something even more abstract, but still something of value to the business: a resource embodying economic benefits.

I think that's what they had in mind: setting the definition of liability wide enough to cover unusual items.

Is that any help?

A-Vic

Think they gave up lol

swirlywirly

Sorry, only just got back to this thread. But yes that makes more sense now:

The settlement of which is expected to result in an outflow of "valuable things".

Why can't they just say that?!

Thanks guys!