What’s the difference between an expense and a liability and can something be a liability and an expense? e.g. wages liability and wages expense

Let’s use superannuation as an example because you can have superannuation expense and superannuation liability.

What’s the difference?

With an expense is something that is spent by your business

For example, rent is an expense. You might pay $200 for the right to use a premises for a week. Once you pay that money and you stay in the premises for a week, that’s it. You money gets you what you pay for and you don’t get something that can be used as an ongoing thing e.g. like a computer.

What’s a liability then? A liability is what you owe someone. Something that you’re going to have to pay. E.g. with superannuation you keep some money behind (collect it) and the total collected is a liability that you’ll have to pay to someone, most likely the superannuation fund.

Can something (the same thing) be both a liability and an expense. Yes it can.

It’s something in the weird world of double entry bookkeeping (just a fancier way of saying, how things are organised and recorded in accounting).

Here’s a diagram below of how accounting can record superannuation expense and liability at the same time (see how you need two sides for the record keeping - a debit and credit - the in and out).

See how superannuation is recorded as an expense (because it’s a cost for the business as part of hiring someone) and whether or not the expense has been paid determines whether it’s been recorded as a liability or not.

Next: Part 6 - Superannuation, PAYG Withheld & Payment Summaries

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