Welcome to our Skinny Zone Forum!
It is our desire that this forum will add to the enjoyment of its users and bring you even closer to attaining your health goals. We believe there is great value in being a part of a strong, like minded community when striving to reach specific goals. We hope this will be a great tool for you to launch further into finding your own personal Skinny Zone! Reach it – Live it – Keep it!
**Although there will no doubt, be valuable information here from experienced users of the Skinny Zone products you must keep in mind that the information shared by each individual is their own expressed opinion based on the individual’s experiences and/or opinions and are not necessarily the view of Skinny Zone – by Bona Sano Co Inc. Any statement, opinion, or expression made here is not intended to diagnose, treat, cure, or prevent any disease. Please perform your own due diligence in assessing the appropriate use of the information provided.
What is the difference between liabilities and accruals?
That's an excellent question that gets to the heart of accrual accounting! The key difference is that liability is a broad category of financial obligation, while an accrual is a specific accounting mechanism used to recognize a liability or asset that exists even though the related cash has not yet changed hands.
In short, an accrual can create a liability.
Liability: The Broad Obligation
A liability is a general accounting term that refers to a financial obligation a person or company owes to another party. Liabilities represent a probable future sacrifice of economic benefits arising from present obligations of an entity to transfer assets or Bookkeeping and Accounting Services Knoxville to other entities in the future as a result of past transactions or events.
Key Characteristics of a Liability:
Definition: Anything that a company owes—money, goods, or services—to an outside party.
Balance Sheet: They appear on the right side of the balance sheet.
Examples:
Accounts Payable: Debts for goods or services for which an invoice has been received.
Notes Payable/Bonds Payable: Formal written promises or agreements to repay borrowed money.
Unearned Revenue: Cash received from a customer for goods or services not yet delivered.
Accrued Liabilities (The Accrual): Amounts owed for expenses incurred but not yet invoiced.
Accruals: The Recognition Mechanism
An accrual is the process of recognizing revenues or expenses in the accounting period in which they are earned or incurred, regardless of when the cash transaction actually occurs. This is necessary under the accrual basis of accounting to comply with the matching principle, which dictates that expenses should be recognized in the same period as the revenues they helped generate.
When an expense is incurred (like employees working or utilities being consumed) but a bill hasn't arrived by the end of the accounting period, that expense must still be recorded. This is done by creating an accrued expense and a corresponding accrued liability.
Key Characteristics of an Accrual (Specifically Accrued Liability):
Definition: An expense that has been incurred but not yet paid or formally billed (invoiced) as of the balance sheet date.
Purpose: To properly match expenses to the period in which they helped generate revenue.
Balance Sheet: An accrued liability is a type of current liability.
Examples:
Accrued Wages Payable: Employees earned wages in December, but payday is in January. The December wages are an accrued liability in December.
Accrued Interest Payable: Interest expense builds up on a loan throughout the month, but the bank hasn't sent a bill yet.
Accrued Utilities: Electricity or water used in December, but the bill doesn't arrive until January.
In summary, Bookkeeping Services Knoxville, think of the entire universe of debt. When you see accrual, think of a specific debt that has been incurred but not yet billed—it's a liability created by an adjusting journal entry to correctly state the company's financial position at the end of a reporting period.
