What type of obligation is classified as a Long-term Liability?

A long-term liability is defined as a financial obligation that is not expected to be settled within one year or the business's operating cycle, whichever is longer. The reason an obligation that is payable in two years falls under the long-term liability category is that it extends beyond the typical short-term period. These liabilities are generally associated with financing operations and are often tied to major investments, such as loans or bonds, where the repayment period is extended to allow businesses time to generate the income necessary to meet these obligations without straining operational cash flow.

In contrast, obligations due within the fiscal year are considered short-term liabilities, while being subject to interest does not inherently classify an obligation as long-term, since both short-term and long-term liabilities can involve interest payments. Furthermore, the characteristic of being payable anytime does not relate directly to the classification of a liability as long-term since it does not specify a time frame that extends beyond one year. Therefore, the clear criterion for long-term liabilities is their due date, which is satisfied by obligations such as those payable in two years.