LA AP - Expensing Liability Payments (1-39)

Some organizations desire to show payments against Liabilities as Expenses. Follow these steps:

1. Create an additional Liability account and an Expense account for each Liability account to
which payments are being made.

For example:

Liability Account: Bank Loan

Additional Liability Account: Bank Loan Reduction

Expense Account: Bank Loan Expense

2 When making a payment against a Liability account, make these entries:

a. Credit Checking and Debit the original Liability account.

b. Credit additional Liability account and Debit the Expense account.

Expensing a Liability Example: Bank Loan
Credit Debit

a. Checking Bank Loan

b. Bank Loan Reduction Bank Expense

Your I & E reports will show the amount paid on the loan, and the Balance Sheet will reflect
the activity in the two Liability accounts. However, the total of your liabilities will not change
during the year, as the two Liability accounts will offset each other.

3. At the end of the year, after all I & E reports have been run:

a. Credit the total of all payments made to the appropriate Expense account.

b. Debit the same amount to the additional Liability account.

You may then run a final Balance Sheet showing the end-of-year status of your liabilities.

Have more questions? Submit a request



Please sign in to leave a comment.