Liability accounts are separated into short-term liabilities, for obligations due within the current operating period, which is normally considered to be one year, and long-term liabilities, for obligations with due dates beyond one year.
Current Liabilities
Current liability accounts include bank loans. These accounts may have different titles such as short-term bank debt, notes payable to banks –short-term, or amounts due to banks and financial institutions. There may be one or more accounts set up for current installments of obligations under capital leases.
A principal account in the current liabilities section is trade accounts payable, which may also be called commercial accounts payable, vendors payable, or payable to suppliers. Like its counterpart, trade accounts receivable in the current assets section, there is normally a subledger for trade accounts payable, to keep track of individual vendor accounts.
Other short-term liability accounts include notes payable (other than bank notes), dividends payable (in the case of a corporation), income taxes payable, and other accounts payable, or miscellaneous payables.
If there are affiliated companies involved, there could be liability accounts with titles such as accounts payable to related companies, intercompany accounts and notes payable, current payables – affiliates, or current payables – intercompany.
Accruals constitute another class of accounts in the current liabilities section. Accruals are used to record expenses incurred, that apply to the current period, but that have not yet been billed. There could be one account called accruals, or accrued expenses, or separate accounts could be set up for accrued utilities, accrued vacations, accrued taxes, and others.
If you have employees and a payroll, you will need employee withholding accounts to record the amounts withheld from employees’ paychecks and pending payment to the appropriate institution. Withholding accounts may be set up for taxes, including U.S. federal income tax, state income tax, local income tax, Social Security or FICA tax; court-ordered withholdings, for child support, for example; and for benefit plans, including pension plans and health care plans. If your business offers a plan for elective salary deferrals, there should be a withholding account set up for the portion of pay that employees elect to defer.