To compare liability account and expense accounting for knowing the difference between liability account and expense account is very necessary for making correct financial statements. There are lots of transaction and accounting department can easily classify it in its suitable account if its accounts manager knows these types differences.
Following are the main differences of Liability Account and Expense Account:-
1. Identification
Liability account : Liability account represents the liabilities. We have obtained services in advance or debt or goods on credit, so we have obligation to pay the cost of service or repay debt or cost of goods which we have bought on credit.
Expense account : Expense account represents expenses. In this account, we show the payments which we have paid for current period benefits.
2. Where will it Go in Financial Statements
Liability account : Liability account will show in liabilities side of Balance Sheet. Changes in the balances of liabilities over the two financial years will show in Cash Flow Statement. We do not show it in income statement because it is not expense or income account. But remember, there is exception of this principle. Outstanding expense is the current liability which also show in the income statement.
Expense account : Expense account will show in the debit side of income statement. We also adjust all operating expenses when we will calculate the cash from operation in cash flow statement.
3. Classification
Liability account : Liability account is different from expense account on the basis of classification. All liabilities are our obligations for past, current or future benefits.
Expense account : For getting revenue, we have to pay expenses, it may be production expenses, administrative expenses or selling expenses. If expense are very huge than revenue, we have to show these expenses in asset side and written off some part by transferring to profit and loss account.
4. Conversion of Liability account into Expense account
Liability account can be converted into expense account if we pay the payment of services which we have obtained already. For example, our salary payable account is of Rs. 100,000 after 30 days of creating salary payable account, we have paid all these liabilities, now, same liability account will be our salary expense account and it will be closed by transferring our income statement.
Following are the main differences of Liability Account and Expense Account:-
1. Identification
Liability account : Liability account represents the liabilities. We have obtained services in advance or debt or goods on credit, so we have obligation to pay the cost of service or repay debt or cost of goods which we have bought on credit.
Expense account : Expense account represents expenses. In this account, we show the payments which we have paid for current period benefits.
2. Where will it Go in Financial Statements
Liability account : Liability account will show in liabilities side of Balance Sheet. Changes in the balances of liabilities over the two financial years will show in Cash Flow Statement. We do not show it in income statement because it is not expense or income account. But remember, there is exception of this principle. Outstanding expense is the current liability which also show in the income statement.
Expense account : Expense account will show in the debit side of income statement. We also adjust all operating expenses when we will calculate the cash from operation in cash flow statement.
3. Classification
Liability account : Liability account is different from expense account on the basis of classification. All liabilities are our obligations for past, current or future benefits.
Expense account : For getting revenue, we have to pay expenses, it may be production expenses, administrative expenses or selling expenses. If expense are very huge than revenue, we have to show these expenses in asset side and written off some part by transferring to profit and loss account.
4. Conversion of Liability account into Expense account
Liability account can be converted into expense account if we pay the payment of services which we have obtained already. For example, our salary payable account is of Rs. 100,000 after 30 days of creating salary payable account, we have paid all these liabilities, now, same liability account will be our salary expense account and it will be closed by transferring our income statement.
Comments