Similarities & Differences Between Liability and Expense

1. A Liability is the amount due or expense payable by the business to outsiders (Suppliers, Banks, Financial Institutions, etc). Examples of liabilities are Sundry Creditors / Accounts Payable, Outstanding Expenses such as Salaries Payable, Fees Payable, Rent Payable, Utilities Bills Payable, and Unearned Revenues such as Rent Received in Advance, Fees Received in Advance, Bank Loans, etc. while Expenses are the costs of earning Revenue for the business during the accounting. Examples are Rent, Expense, Salaries Expense, etc.

2. A liability has mainly two types Current Liability and Non Current Liability. A Current Liability is payable by the business to outsiders within one year while a Non Current Liability is payable more than one year. Examples of Current Liabilities are Accounts Payable, Outstanding Expenses, Unearned Revenues, Current Portion of a Loan, etc., while examples of Non Current Liabilities / Long-Term Liabilities are Bank Loans. An Expense has two types Direct Expense and Indirect Expense. Direct Expense is incurred for the direct source of revenue (Sales of Goods / Products) like wages expenses, transportation expenses while indirect expense is incurred for other operation activities and other sources of revenue of the business, like operating expenses, selling expenses, administrative expenses, etc.

3. A Liability has Normal or Favourable Balance on Credit Side. When it increases, we credit it and when it decreases we debit as we pay our dues to outsiders and it is recorded on Liabilities & Equity side on Balance Sheet at the end of accounting period while expense has no Balance. When it incurs, we debit it and when it is closed we credit it. It is recorded in Income Statement On Expense Side.

Similarities Between Liability and Expense

1. Both are necessary for the Stability of the Business. As Expenses are incurred for the purpose of earning revenues like Sales while liabilities are incurred to run the business operations like Telephone Bills payable, Mobile Phones Expenses Payable, etc which are necessary for communication with customers or supplier on daily basis in order to finance the business operations.

2. Both are used to generate profits for the business. As expenses are required to gain profits out of selling goods or services to customers while expenses payable are used to meet daily working requirements of the business like wages payable, salaries payable to boost sales and pay later on to workers and employees out of the profitable activities supplied by Current Liabilities or Long-Term Liabilities like Bank Loans.

So, a Current Liability is the obligation payable by the business to outsiders while an expense is the incurred for the purpose of earning in future. Moreover, both liabilities and expenses are used to finance the operations of the business on daily and ultimately lead to long-term basis later on.