What can affect a liability? And do you know how to record it in a T account?
I’m Thomas Harwood and Welcome to The Accounting Student, where we create free and short videos
so that you can learn about accounting.
Today’s video is looking at three things that can affect a liability T account.
First of all, let’s quickly recap the basics of a T account.
A vertical line is drawn in the middle of the page so that it is divided into two sections.
Then a line is drawn across the top and the title for the account is written on the top
line in the centre like so.
The left hand side of the T account is known as the debit side or debit.
And the right hand side of the T account is known as the credit side or credit.
You can also title “Date” in these columns “Details” in these columns and title “your
currency” in these columns.
If you want to learn more about how to prepare or open a T account for a liability then click
on the link above to watch the video on How to open a T account. Also if you do not know
what a liability is then click this link above.
Let's now have a look at three things that may affect a liability T account.
Daniel bought extra fixtures & fittings worth £1,000 on credit from Fix LTD.
This transaction would have an affect on a liability i.e. the creditor or Fix LTD’s
account and because Daniel has bought more fixtures on credit this means a liability
has increased.
To record this we would enter the details on the credit side of the Fix LTD T account
known as a creditor. We will presume the transaction took place on the 2nd March 2016, which can
be shown as 2/3/16. Then we will note it as fixtures & fittings in the details column
because that is the name of the other account that has been affected during the transaction.
And finally 1,000 is entered in the £ column.
Daniel then repaid £2,000 in cash to Machine LTD for some machinery that was bought on
credit in the last year.
This transaction would have an affect on a liability i.e. the creditor or Machine LTD’s
account and because Daniel has repaid for some machinery that were on credit this means
a liability has decreased, since he owes less.
To record this we would enter the details on the debit side of the Machine LTD's T account.
We will presume the transaction took place on the 9th March 2016, which can be shown
as 9/3/16. Then we will note it as cash in the detail column because that is the name
of the other account that has been affected during the transaction. And finally 2,000
is entered in the £ column.
Daniel then decides to take out another short-term bank loan of £4,000.
This transaction would have an affect on a liability i.e. the bank loan account and because
Daniel has borrowed more money from the bank this means the liability has increased.
To record this we would enter the details on the credit side of the bank loan T account.
We will presume that the transaction took place on the 14th March 2016, which can be
shown as 14/3/16. Then we will note it as bank in the detail column because that is
the name of the other account that has been affected during the transaction. And finally
4,000 is entered in the £ column.
So that was three things that can affect the T account of a liability. If you enjoyed it,
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