Liability Account

Liability Account (Definition)

A liability account is an account on a companys balance sheet that represents a companys financial debt or obligations.

Key aspects of liability accounts include:

1. Record what the company owes to others
2. Include accounts such as accounts payable, loans payable, and accrued expenses
3. Typically have credit balances, increasing with credits and decreasing with debits
4. Divided into current liabilities and long-term liabilities based on when theyre due
5. Used to track obligations to creditors, suppliers, and other parties
6. Play a crucial role in determining a companys financial position and leverage
7. Regular reconciliation of liability accounts is important for accurate financial reporting

Understanding and properly managing liability accounts is essential for maintaining financial health and meeting obligations.