Question

when do you credit a liability account? what will you do to reduce the balance of any liability account explain with an example

Answer 1

We credit a liablity ledger when the "Liability Increases".

We should 'debit' the liability ledger when we want to reduce the balance in the liability account.

For eg :

Let us assume that, there is a Rent payable for Rs.500. Oustanding Rent is a Liabilty.

Then, the entry will be,

Rent A/c Dr  Rs.500

     To Outstanding Rent A/c   Rs.500

Here, when we credit O/S Rent A/C , Liability Increased.

Now, the O/S Rent is paid through Cash. So, the entry will be,

Outstanding Rent A/c Dr   Rs. 500

    To Cash A/C  Rs. 500

Here, when O/S Rent is paid Liability has Decreased. So, it is debited.

Hope u Understand.

     

Answer 2

Explanation:

A debit to a liability account means the business doesn't owe so much (i.e. reduces the liability), and a credit to a liability account means the business owes more (i.e. increases the liability).

Liability accounts are divided into 'current liabilities' and 'long-term liabilities'.

Liability accounts in double-entry bookkeeping

In double-entry bookkeeping, there are five types of nominal accounts:

Income accounts: what the business has earned

Expense accounts: the business's day-to-day running costs

Asset accounts: what the business owns

Liability accounts: what the business owes

Capital accounts: what is owed to or by the business owner.

How debits and credits work for different accounts

To increase the amount in your business accounts, you need to debit some accounts and credit others. What you do depends on the kind of account you’re dealing with:

for an income account, you credit to increase it and debit to decrease it

for an expense account, you debit to increase it, and credit to decrease it

for an asset account, you debit to increase it and credit to decrease it

for a liability account you credit to increase it and debit to decrease it

for a capital account, you credit to increase it and debit to decrease it