In the context of financial statements, what is considered a liability?

A liability in financial statements represents an obligation that a company owes to external parties. This could include debts, loans, or any future payments the company is obligated to make as a result of past transactions or events. This definition aligns perfectly with the concept of liabilities, which are recorded on the balance sheet and signify what the company is required to pay back to creditors.

In contrast, investments made by shareholders are classified as equity, representing ownership in the company rather than obligations. Expenses incurred by the company relate to operational costs and are reflected on the income statement rather than the balance sheet as a liability. Revenue generated from sales is an indication of income achieved during a specific period and contributes to the overall profitability of the company, but it does not represent an obligation to pay anyone. Therefore, obligations owed by the company distinctly highlight the nature of a liability, making this the correct answer.