Profit is a liability of a business enterprise.

Explanation: The profits of a business is transferred to the owner/partner's capital account. According to the business entity concept, the owner is different from the business he owns for purposes of accounting. So the profits the business earns, the business firm is liable to pay to the owner. Hence, profits is a liability. However, the profits/part of the profits may be retained in the business for developmental activities or for reserves subject to the rules from time to time.