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Liabilities are debts or obligations owed to third parties other than the owner as a result of past transactions.

Along with assets and owner's equity, it is one of the three main components of the accounting equation

The liability account is used to record increases and decreases in liabilities.

A liability account tells us how much a business owes at any given time. A credit entry is used to increase liability account, whereas a debit entry is used to decrease liability account.

Common Liability Accounts

1. Note payable: This is an account used to record increases and decreases in promissory note amount owned to credit.

It is the direct opposite of notes receivable and is usually classified as current liabilities in the balance sheet

2. Trade payable: At times, a company buy goods on credit from its suppliers.

A trade payable account is used to keep track of money owing to suppliers.

3. Wages payable: This account is used to record wages expenses that have been incurred but have not yet been paid. 

Because the corporation is obligated to pay this wage, it is a liability.

4. Taxes payable: As the name seems to suggest, taxes payable is the total amount due to government entities but for which payment is not yet to be made. 

It is a liability because it is a government claim on the business.

5. Rent payable: This is a common account for companies using rented properties. A rent payable records the total amount of rent a business owed to its landlord.

Because it indicates the amount of rent expense that has not been paid as of the time of reporting, rent payable is also known as accrued rents.

6. Interest payable: Interest expenses that have already been incurred but for which payment has not yet been paid.

The most common form of interest payable is Unpaid bank loan interest.

7. Unearned revenues: Customers have been known to pay in advance for goods and services that would be supplied later.

These are recorded in an unearned revenue account.

Unearned revenues are revenues that are received before the company delivers goods or services. They are called unearned revenues because the company has not earned the revenue, it only received payment.

Unearned revenues are liabilities because they represent claims by the customers for these goods and services.

8. Overdraft:  Most times, companies overdraw their bank balance. Therefore, they have to settle this obligation.

9. Bank loans: Besides overdraft, companies usually receive money from banks in the form of loans. This is recorded in the bank loan account.

These constitute liability because the corporation is obligated to repay the debts.

10. Sales tax payable: This is the account used to record increases and decreases in sales tax.

Sales tax are expressed as a percentage of the sales price. The way sales prices work is as follows: retailers collect tax from the customers, the retailer then remit the tax collection to the tax authorities of the state

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