What is a liability account?

Definition of Liability Account

A liability account is a general ledger account in which a company records the following which resulted from business transactions:

  • Amounts owed to suppliers for goods and services received on credit
  • Principal amounts owed to banks and other lenders for borrowed funds
  • Amounts owed for wages, interest, taxes, and amounts incurred but not yet processed
  • Amounts that customers have prepaid, customers' deposits, etc.
  • Certain deferred corporate income taxes
  • Contingent obligations that are probable and can be estimated

Examples of Liability Accounts

Common liability accounts used with the accrual method of accounting include:

  • Accounts Payable
  • Notes Payable or Loans Payable
  • Accrued Liabilities or Accrued Expenses
  • Unearned Revenues or Customers' Deposits
  • Deferred Income Taxes

The balances in liability accounts are nearly always credit balances and will be reported on the balance sheet as either current liabilities or noncurrent (or long-term) liabilities.

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