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sammy89's avatar
sammy89
User
2 years ago

Allocating transactions

Hey there, 

 

Im very new to this and hoing someone can help me. Currently in a partnership 50/50. When allocating transcations, can someone tell me the diffrence between expense and liability? I undertand that expense is something that is money spent on the business - hence epense, but I dont understand what liability is. For example - "Drawing - Liability" for an allocation.  

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  • Tracey_H's avatar
    Tracey_H
    Former Staff
    2 years ago

    Hi sammy89 

     

    Thanks for your post. A liability is money owed by your business, this is things like loans, credit cards, accounts payable, GST, superannuation, PAYG, or anything the business has to pay. When a liability is paid the payment transaction is posted to the liability account, thus reducing the amount owed by the business.

     

    Using supplier invoices as an example:

     

    1. when you record the Bill transaction the accounts payable liability account is credited and the selected expense/cost of sale account is debited. This increases the expense/cost of sales account and increases the liability account.
    2. when you record the Payment transaction the accounts payable liability account is debited which reduces the liability owed by the business. The bank account is credited which appears as a withdrawal for matching with the actual payment on the bank statement.

    Cost of sales are the direct costs of providing your goods or services, eg materials, stock. Expenses are the running costs of the business, eg, accounting fees, subscriptions, internet, payroll.

     

    Please let me know if you need further help.

     

    If my response has answered your enquiry please click "Accept as Solution" to assist other users find this information.