A liability account records money the business owes. When a supplier bill arrives, the purchase is recorded in an expense or asset account. The liability account holds the other side of the same entry. Count the purchase side only.
Which liability accounts do I exclude?
Account | What it holds | Treatment |
Accounts payable, trade creditors | Supplier bills not yet paid. The cost is already in an expense or asset account. | Exclude |
Goods received not invoiced (GRNI), GR/IR | Goods received before the invoice arrives. The cost is already in an inventory or expense account. | Exclude |
Accrued expenses, accruals | Month-end estimates of costs not yet invoiced | Exclude |
Provisions | Estimates of future costs, such as leave or site restoration | Exclude |
Loans, borrowings, lease liabilities | Money borrowed, or owed under a lease | Exclude |
GST, income tax, payroll tax payable | Tax owed to government | Exclude |
Wages, superannuation and leave payable | Money owed to employees | Exclude |
Customer deposits, unearned revenue | Money received before a sale | Exclude |
When do I include a liability account?
Include a liability account only when supplier invoices post to it first, and a journal later moves the cost to an expense or asset account. This is an invoice clearing account. Names include Invoice clearing, Purchases clearing and Unallocated purchases.
The clearing account is where the invoice first lands. Include it. Leave out the journals that move the cost into the expense or asset accounts. Never count both. See Which period does a cost belong to?
How do I test a liability account?
Ask your finance team these questions, or look at the transactions in the account:
Do the lines show supplier names and invoice numbers? If not, exclude the account.
When a supplier invoice posts to this account, what is the other side of the entry? If it is an expense or asset account, the purchase is already counted there. Exclude the liability account.
If the other side is accounts payable, does a journal later move the cost to an expense or asset account? If yes, it is a clearing account. Include it, and exclude the transfer journals.
See Debits, credits and why some numbers are negative for how the two sides of an entry work.
Why does a supplier spend report show liability accounts?
A spend report from accounts payable can list each supplier invoice against the accounts payable account. The cost is in the expense or asset account on the other side of each entry. Use the general ledger lines in the expense and asset accounts, not the accounts payable account.
What if a liability account holds expenses?
An account can have the wrong type, for example after a move to a new finance system. If an account holds supplier purchases but has the type Liability, ask your finance team to confirm the correct type.
What this means in Avarni
Avarni sets every Liability account to Excluded when you upload your chart of accounts.
To include a clearing account, change its category before you upload your general ledger. Rows for an excluded account are rejected at upload.
Leave out the transfer journals with a classification rule that sets the GHG Category to Excluded. Match on the description or the transaction type.
You cannot change an account type in Avarni. Correct the type in your file and upload the chart of accounts again. Categories stay on accounts whose codes do not change. Then check the category of each account you corrected.