Accounting – Balance Sheet – Liability and Shareholders’ Equity Accounts

A liability is a business’s obligation. It is the amount that the business owes. Your business’s liability accounts will be shown in the general ledger, charts of accounts, and balance sheet immediately after the assets accounts. Note that in the general ledger, a liability account will show a credit balance.

Here are some of the liability accounts that you may need to keep for your business.

Short-term loans payable

You should record all short-term loans (ones that are repayable in less than a year) in this account.

Accounts payable

This is an account that reveals the amounts that your business owes to its suppliers for invoices that have been approved and scheduled for payment. It shows the total unpaid amount.

Accrued expenses accounts

Under the accrual method of accounting, the amount recorded in this account are owed but haven’t been recorded in the accounts payable. The accrued expenses account could include the employee wages and other earned benefits that have not been recorded, vendor invoices that await processing, and any other expenses that has been incurred and not yet recorded in the accounts payable using double entry accounting.

Loans payable and Borrowing account

A loan or borrowing is a long-term loan that cannot be paid at once and therefore might require a series of payments. You should report the principal amount due within 12 months as a current liability and the remaining amount of the principle owed as a non-current liability. Note that you shouldn’t record the future interest as a liability because it isn’t due or payable as of the date of you are preparing your business balance sheet (Also see Bookkeeping Tips to Save Time and Money).

Shareholders’ Equity Accounts

For a company, these accounts appear in the general ledger, trial balance, charts of accounts (Also see How to Create Your Chart of Accounts) and balance sheet. Note that in the general ledger, these accounts have credit balances. Here are some of the shareholders’ equity accounts that you may want to keep.

Paid-up capital accounts

This account shows the amount paid to your company for the shares it issued shares. Note that Singapore legislation has abolished the par value concept and therefore, both the share capital and share premium element is included in a single share capital line, unlike other countries where are two accounts for the common shares: the par value of the common shares, and the paid-in capital in excess of the par value (share premium).

Retained earnings and other reserves

The profit earned after paying interest for debt finance and preference shares dividend is effectively belongs to the common shareholders. Retained earning is therefore the undistributed earnings owing to the common shareholders. For strategical reasons or future development purposes, the management sometimes will specify a certain amount to be reserved and retained, for instance, restructuring reserves or business development reserves, after obtaining the approval from the shareholders.

Conclusion

You can consider engaging an accounting firm in Singapore and let the expert give you a professional insight if this is not where your field of expertise lies. Understanding each element sits in the balance sheet will no doubt give you an edge, as a business owner, in better managing your business’ resources.