Many people think that liabilities are expenses, but they are not. A liability can be described as a loan you have with a financial institution, or money that you owe to vendor suppliers, which is also called A/P. The primary difference between expenses and liabilities is that if you were to go out of business tomorrow, you would no longer have to pay expenses. Instead, you would stop making payments for utilities, and you would lay off employees to eliminate payroll expenses.

On the other hand, if you go out of business, you still have to pay your outstanding liabilities. For example, if you have an outstanding loan with a bank, you still have to make your loan payment until it has been paid off. The same would apply for unpaid bills for products and/or services you received. This means you would have to contact the vendor/supplier and notify them you are going out of business in order to make payment arrangements.