A liability account is a type of account in a company's accounting system that represents obligations or debts the company owes to external parties. These obligations can be due to creditors, suppliers, employees, or other entities, and they typically arise as a result of past transactions or events. Liabilities are recorded on the balance sheet and are classified as either current or non-current.
Types of Liability Accounts :
Current Liabilities : Obligations that are due within one year or within the company's operating cycle, whichever is longer. Examples include:
* Accounts Payable: Money owed to suppliers for goods or services received.
* Short-Term Loans: Borrowings that need to be repaid within a year.
* Accrued Expenses: Expenses incurred but not yet paid, such as salaries or utilities.
* Unearned Revenue: Money received in advance for goods or services not yet delivered.
Non-Current Liabilities : Obligations that are due after more than one year. Examples include:
* Long-Term Loans or Bonds Payable: Debt instruments with repayment terms extending beyond a year.
* Lease Obligations: Payments owed under long-term lease agreements.
* Deferred Tax Liabilities: Taxes owed in the future due to temporary differences between accounting and tax rules.
