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.