Liability
What is a liability?
A liability is money the business owes to someone else.
A bank loan and an unpaid supplier bill are liabilities.
In the books a liability account goes up on the credit side and down on the debit side.
Example
A bakery has a bank loan of £5,000.00 and owes its flour supplier £800.00. Its liabilities come to £5,800.00.
Why it matters
Liabilities show what must be paid, and to whom. Assets less liabilities gives the owner's capital.
Practise it
Practise it nowWhat a business has and owes
Ledger Drill is practice, not tax or accounting advice. If this looks wrong, tell us at [email protected].