Month End Glossary

Obligation

An obligation is a duty or commitment that an individual or entity has to fulfill.

In accounting and finance, an obligation refers to a responsibility or duty that an individual or entity is bound to fulfill, often by law or as part of an agreement. Obligations frequently involve monetary terms, such as paying outstanding debts, fulfilling the terms of a contract, or maintaining compliance with financial covenants. For example, a company may have an obligation to repay a loan to the bank by making monthly payments. Common categories of obligations in business include current obligations, which are short-term duties due within a year, and non-current obligations, which are duties expected to be settled in the long term. Fulfilling obligations is a key aspect of maintaining solid business operations and fostering trust with stakeholders.

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