Liability Account Type

A Liability account will typically have a credit balance at the end of each month. In simple terms, a Liability is something that you “owe”. Examples of liabilities are:

• Amounts owed to vendors for items you have purchased but have not yet paid for are recorded in Accounts Payable.
• Amounts owed for items that have been received and not yet paid for - and that have not yet been processed through the regular payables system - are recorded in the Accrued Expenses account.
• Payments due to employees at the end of the month that have not been paid due to the normal processing time required to create payroll checks are recorded in the Accrued Payroll account.
• Notes or Loans Payable – amounts that were borrowed that must now be paid back at some future date.

To further simplify the concept, if this doesn’t quite make sense, a liability represents your requirement to pay somebody in the future. You must pay that company or person to satisfy your liability to them or they'll be after you like a fly on... well, you know the rest.

If you stick with these two thoughts (“owe” and “pay someone in the future”), you should be able to easily identify your liabilities.

Usually these items will be further classified by the accountants as Current and Non-Current. For purposes of preparing account reconciliations, this doesn’t make any difference.

NOTE: The reason it is important to classify an account as a Liability for RecWizard purposes is that the “normal balance” will always be a credit.