Liability

A legal debt or obligation estimated via accrual accounting.
Notes:
Recorded on the balance sheet, liabilities include loans, accounts payable, mortgages, deferred revenues, and accrued expenses. For example, the unpaid value of a mortgage or outstanding money owed to suppliers would be considered a liability. Current liabilities are debts payable within one year, while long-term liabilities are debts payable over a longer period.

Debt

An amount of money borrowed and owed by one party to another.
Notes:
Bonds, loans and commercial paper are all examples of debt.

Bad Debt

A debt that is not collectable and therefore worthless to the creditor.

Debt/Equity Ratio

A measure of a company's financial leverage calculated by dividing long-term debt by shareholders equity. It indicates what proportion of equity and debt the company is using to finance its assets.

Note: Sometimes investors only use interest bearing long-term debt instead of total liabilities.

Shareholders' Equity

A firms' total assets minus its total liabilities. Equivalently, it is share capital plus retained earnings minus treasury shares. Shareholders' equity is the amount by which a company is financed through common and preferred shares.

Equity

1. Stock or any other security representing an ownership interest.

2. On the balance sheet, the amount of the funds contributed by the owners (the stockholders) plus the retained earnings (or losses). Also referred to as "shareholder's equity".

3. In the context of margin trading, the value of securities in a margin account minus what has been borrowed from the brokerage.

4. In the context of real estate, the difference between the current market value of the property and the amount the owner still owes on the mortgage. Thus, it is the amount, if any, the owner would receive after selling a property and paying off the mortgage.

Equity is a term whose meaning depends very much on the context. In general, you can think of equity as ownership in any asset after all debts associated with that asset are paid off. For example, a car or house with no outstanding debt is considered the owner's equity since he or she can readily sell the items for cash. Stocks are equity because they represent ownership of a company, whereas bonds are classified as debt because they represent an obligation to pay and not ownership of assets.

Accounts Payable - AP

Any money that a company owes its suppliers for goods and services. Accounts payable is recorded on a company's balance sheet as a short-term (current) liability.

Accounts Receivable - AR

Money that customers (individuals or corporations) owe a company in exchange for its goods or services. Accounts receivable usually come in the form of operating lines of credit, and are usually due within a relatively short time period, ranging from a few days or weeks up to one year.

If a company has receivables, it means it has made the sale but has yet to collect the money from the purchaser. Most companies operate by allowing some portion of their sales to be on credit. These sales are usually to frequent customers, who are invoiced periodically, allowing them to avoid the hassle of physically making payments as each transaction occurs.

If you look at the balance sheet of a public company, you will usually see accounts receivable recorded as an asset, since it represents a legal obligation for the customer to remit cash for its debts. Conversely, when a company owes debts to its suppliers or other parties, these are known as accounts payable.