All the lessons on this site and much, much more...

Available Now On

Support this Site:
Make a Donation

Get Your Degree!

Find schools and get information on the program that’s right for you.

Powered by

Liability Example

Previous lesson: Owners Equity Example
Next lesson: Asset Example

Here's the second example for George's Catering, an example of a liability:

b) George realizes that he needs more money to create a really high-quality catering business. Yet he does not have any more personal funds available to invest in the business. He decides to take a loan from the bank to the value of $5,000.

Loan from the Bank

As you can see, $5,000 more cash is available. This cash was obtained by creating a liability (debt). External parties (the bank) now have a $5,000 claim to the total assets of the business. George’s Catering will have to pay back the $5,000 in the future.

In our previous example the assets were funded by the owner, so assets and owners equity changed, but liabilities stayed at zero.

This time the assets and liabilities changed, but not the equity. The owner’s stake in the assets of the business is unaffected (still $15,000). The owner now really owns only 75% of the assets ($15,000 / $20,000).

If you are having any difficulty with understanding the example above, return to the lesson entitled Define Liability.

Return from Liability Example to Basic Transactions

Return from Liability Example to Home Page

Previous lesson: Owners Equity Example
Next lesson: Asset Example

Enjoying this Website?
Help Support it with a Donation



Have your say about what you just read! Leave me a comment in the box below.

Advertise on

More To Explore

Related pages

journal accounting entries examplesfinancial accounting worksheetbookkeeping exam paperslifo vs fifoperiodic inventory system definitionaccounts payable basicscost of goods manufactured equationincome & expenditure accounthow to find retained earningaccounting entries for purchasesdr-right of setoff to acctsample financial statements for sole proprietorshipledger book sampleaccounting cycle processfifo method of stock valuationbudgeted statement of cash flowshow to compute gross profit percentageaccounts payable journallifo and fifo solved questionsassets liabilities equity equationledger folio numberaccrual accounting entryfinding markup percentagesample cash flow statement excelcash disbursement journal exampleformula for owners equityaccounting 1a final examsales invoice double entrycogs accounting entrysofp formatsundry meansdefinition of accounting and bookkeepingtrade in allowance journal entrycogs definition accountingpro forma balance sheet template exceldefinition of bills receivablebook debts definitionmeaning of accruals in accountingpaid rent in advance journal entrycreditor meaning in accountingcosting methods for inventoryrent payment ledgerblank trial balance sheetgross sweetsasset meaning in urdubad debts provisionprovision for losses on accounts receivablehow do you find the percent markupaccounting 101 quizbasic accounting ledgerabreviation for accountingdefine accounts recievablecommon size income statementaccounts payables journal entriesworksheet of accountingjournal entries for merchandise transactionsexample cash flow statement direct methodcost of goods sold formulaspreparation of financial statements from trial balanceconvert markup to marginbalance sheet sample excelthe adjusted trial balance is preparedaccounting concepts journal entriesexample p&ldefine classified balance sheetbest books accountingprovision for bad debts income statementjournal entries in accounts payablebookkeeping exam pdfdefinition of retained profitsassets stockholders equity liabilitiesaccounting payable and receivableperiodic inventory system cost of goods sold