Question

Mona has started a new business and is wondering about different ways of increasing liabilities (she is especially confused about unearned revenues). Discuss, in detail, a few liability accounts and how they typically increase. Be specific!

clearly answer

Answer 1

If Mona wants to increase the liabilities of her business, it basically means she wants an inflow of cash and donot want more outflow, So to increase the inflow she can do many thing like:

1. Purchase goods on credit- First thing she can do to increase liability is to purchase goods or inventory on credit, which will increase her creditors and her liability too.
2. Wages owned- If she want to increase liability of business then she can just not pay the wages of the labours, which she has to pay in the future, that will increase her liability.
3. Loans payable- She can lend money from bank for the further investment which will increase her liabilities.
4. Bank fees- Bank fees/ bank charges if does not pay by the business then it will increase the liability of business.
5. Unearned revenue- Unearned revenue is also a part of increase in liability beacuse it is the revenue which is already received by the business but the supply or services is not yet provided by the business. It creates the liability for the business because the revenue is not earned but received.