Long-Term Liabilities

• When a business incurs a debt that is not due for more than a year, it is said to take on a long-term liability. Long-term liabilities usually carry interest and are distinguished from current liabilities, which are debts due during the current accounting cycle. While most businesses try to limit their long-term liabilities, taking on debt is a normal part of operating a business and sometimes is even helpful because it allows the company to leverage a greater return on its owners' initial investment.
  
  

Expenses

• Expenses are all of the costs associated with running a business. They include operating costs such as rent, payroll, inventory and insurance, as well as non-operating expenses such as depreciation, the loss of assets' value due to age. Expenses are a necessary part of maintaining any business, but they should be carefully managed to avoid depleting a business's income. Learning to plan for, control and reduce expenses is one of the major skills required of an effective business manager.
  
  

Key Differences

• Expenses and long-term liabilities can both present threats to a business's financial security, but they are substantially quite different. Unlike a long-term liability, an expense is paid out during the financial quarter it is reported. In addition, an expense is recorded on the company's income statement, while long-term liabilities are reported on the balance sheet. Finally, expenses represent costs incurred by the business, while long-term liabilities represent debts that the company owes to its creditors.
  
  

Relationship

• Even though expenses and long-term liabilities are distinctly different items, they are sometimes related in various ways. Companies typically use long-term liabilities to finance business activities, including both asset purchases and expenses. Carrying a long-term liability itself also incurs an expense from interest, which is charged by creditors as consideration for the risk they take in lending out money. Failure to pay off a long-term liability can also carry additional expenses, such as late fees and legal costs.