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What is a liability account?

Author:
Harold Averkamp, CPA, MBA

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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About the Author

Harold Averkamp

For the past 52 years, Harold Averkamp (CPA, MBA) has
worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com.

Learn More About Harold

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