How To Record Liabilities Journal Entries

Liabilities are the debts due payable by the business to outsiders, i.e., Suppliers, Bank, Financial Institutions, etc. There are two kinds of Liabilities:

1. Current Liabilities:- Examples include Accounts Payable / Creditors, Outstanding Salaries, Unearned Revenue, etc.

and

2. Long-term Liabilities / Non Current Liabilities that include Bank Loans, Mortgage Loans, etc.

If Your Are Interested In “How To Enter Accounting Journal Entries For Assets”, then you can Read it in order to get Information about this topic.

The Accounting Journal Entries in respect of Current Liabilities and Non Current Liabilities are the same and the General Rule is that when Liabilities increase, we debit these one and when these decrease, we credit these one. Remember that, the Normal Balance or Favourable Balance of Liabilities is Credit and Unfavourable or Negative Balance is Debit.

Now, let us consider an example in order to record Accounting Journal Entries For Liabilities in the book of Company. Let say, that the company purchased goods worth Rs. 90000 From Mr. A (Supplier), then following Accounting Journal Entry is passed in the Book or Journal of Company:

                                            Purchases a/c   90000

                                                                 Mr. A    90000

(Goods Purchased From Mr. A On Credit Basis)

Here Mr. A (Accounts Payable) as a Current Liability is increasing, so we credit it By Rs. 90000. Purchases is a direct expense and it is also increasing, we debit it by Rs. 90000.

You Can Also Check Out This Article, ”What is The Difference Between Debit And Credit”

Now, we assume that the company makes payment on time for the goods purchased on credit basis, then the following journal entry is passed in the book of company:

                                                         Mr. A     90000

                                                                   Cash a/c    90000

(Cash Paid For Goods Purchased On Credit Basis)

Here, our current liability as a Account Payable (M. A) is decreasing by Rs. 90000 as we are making payment to our supplier to write off our liability, so we debit it. Cash is also decreasing by Rs. 90000, so we credit it.

So, it is very easy to record Accounting Journal Entries For Liabilities On The Journal or Book of Company.