What is the difference between liabilities and expenses

The core of accountancy is the presentation of financial dealings in a structured way that makes it easily understandable for the reader. There are three basic elements of the accounting equation, i. The equation is as follows:. Overall, there are four main categories under which the items of financial statement fall, i.

Income and asset represent the inflow of funds either in a current period or in a future period. Expense and liability are the opposite; they depict the outflow of cash in the current and future period.

But, this does not mean that expense and liability are the same thing. They are different from each other because the components that fall under these two categories have different characteristics and features. Liability is an obligation or a debt a business takes for the smooth running of its operations.

There are long term liabilities and current liabilities. Current liabilities are usually due to be paid within a period of one accounting period; whereas, long-term liabilities are due to be repaid over a period of more than one accounting period. Long-term liabilities are settled over time by transferring economic benefits, such as goods, cash, or services.

Liability includes accounts payable, mortgages, debentures, loans,, accrued expenses, or deferred tax liability, etc. Liability is an important aspect of business that finances large investments in order to keep the operations running. It also allows efficient transactions between businesses. Instead, a service company sends an invoice for the services provided to make it easier for the oil company to make a payment at a later date. Therefore, liability is actually an outstanding amount owed by the business for a good or service it has received but has not yet paid for.

A supplier may provide the goods or services now, but businesses pay for them at an agreed-upon later date. An expense is basically a cost incurred by a business or money spent to earn revenue from the sale of its goods or services. The common type of expenses included in the financial statements of a business are employee salaries, depreciation, interest on a loan, rent, utility expenses, marketing cost, insurance cost for research and development, and other operating expenses.

For example, our salary payable account is of Rs. In comment, you can give your feedback, reviews, ideas for improving content or ask question relating to written content.

Journal Entries Examples. Journal Entries of VAT. Journal Entries of TDS. Journal Entries of Sales. How to Pass Journal Entries for Purchases. Most Difficult Journal Entries. An example of a liability is a debt owed to a vendor. The vendor may supply the goods to the business now, and the business pays for them at an agreed-upon future date. With accrual accounting, both of these transactions would be recorded when they occur, not when the cash transaction happens.

With cash accounting, the transaction wouldn't be recorded until cash changes hands. Another example of a liability is money owed to a bank or an employee.

According to Inc. An example would be an employer who pays the airfare for an employee to travel to a training conference to learn new job skills. Another example would be an employer who covers the cost of a salesperson taking a potential client out to dinner in an effort to gain his business. Generally, in the book of account items like Debt from financial institutions or borrowings extending more than a year comes under non-current liabilities.

Liabilities are taken into the balance sheet of the company in order to create or expand for example financial debt in order to introduce a new product segment in the market or to make inorganic growth in the industry. The benefits of any liability can be shown only over the years and are not immediate. Expenses, on the other hand, are all current and are incurred during a particular year.

Expenses refer to day to day expenditure of the business and all the major expenses which fills the income statement of the firm. Expenses are generally recurring in nature for example staff cost, Rent, electricity etc. Expenses affect the operational capacity of the firm where it becomes necessary for any business to pay their expenses on time in order to maintain their creditworthiness in the market and keep the business cycle churning.

Below is the top 9 difference between Liability vs Expense. Both Liabilities vs Expense are popular choices in the market; let us discuss some of the major Difference Between Liability vs Expense. Both Liabilities vs Expense are a vital and important part of any business that wants to become an industry leader or manage its operations successfully.

Both Liabilities vs Expense needs to be checked by the business on a periodic basis. A business should draft a clear plan and strategy for the future and how much they are projected to make CAPEX expenditure and incur expenses.