What defines a company's liabilities?

The defining characteristic of a company's liabilities is that they represent legal obligations owed to creditors. Liabilities encompass debts or obligations that the company is required to settle in the future, which can include loans, accounts payable, mortgages, and any other forms of financial commitments. When a company takes on a liability, it is essentially entering into an agreement that it must fulfill, typically involving the payment of money or the provision of goods or services.

Understanding liabilities is crucial for assessing a company's financial health, as they are one half of the balance sheet equation: assets equal liabilities plus equity. This equation highlights the importance of liabilities in understanding how a company finances its operations and investments.

The other options do not accurately define liabilities. Assets available for sale refer to resources that can be liquidated, and retained profits relate to equity rather than obligations. Expenses incurred but not yet paid are a specific type of liability known as accrued expenses, but they do not encompass the broader definition of all liabilities a company may hold.