Which of the following best describes liabilities?

Liabilities are best described as obligations or debts that a company owes to external parties. This definition captures the essence of what liabilities represent in the context of financial accounting. Liabilities occur when a company has a legal or contractual requirement to settle an obligation, which typically involves the transfer of assets or service in the future. They are an essential part of a company's balance sheet and can include loans, accounts payable, mortgages, and other forms of debt.

Understanding liabilities is crucial for evaluating a company's financial health, as they indicate how much a company owes and its capacity to meet those obligations. The accurate recognition of liabilities informs stakeholders about the financial risks associated with the company's debt levels and overall stability.