Which of the following best describes 'liabilities' in accounting?

Liabilities in accounting refer to the obligations or debts that a business owes to outside parties. This definition encompasses loans taken from banks, accounts payable to suppliers, and other financial commitments that require future economic sacrifices.

Understanding liabilities is crucial for evaluating a company's financial health, as they represent claims against the company's assets. By identifying and quantifying liabilities, stakeholders can assess how much the company is obligated to pay back to others, impacting profitability, cash flow, and overall solvency.

In contrast, the other options do not accurately define liabilities. Assets are resources owned by a business and include cash and inventory, while income generated from sales represents revenue, not obligations. Lastly, owner’s equity pertains to the residual interest in the assets of the business after deducting liabilities, reflecting the owner's claim on the business rather than the debt owed.