3.7 Balance Sheet – Deferred Liability Accounts

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Balance Sheet - Deferred Liability Accounts

The deferred liability account, or reserve as some may call it, is simply a placeholder account where we store the monies we earmarked for use later; monies we SHOULD NOT spend now. Many firms do NOT have these deferred liability accounts set up on the balance sheet, where it resides. We only need these accounts if we are extending past a 1-year basis. Multiyear service agreements, extended warranties that you fund, special guarantees, or any type of process where a company has to store funds for the future require this type of account. Learn how and why inside the best practice.

Deferred Liability Accounts on Balance Sheet

Use this video to understand the deferred liability process in accounting and how these accounts install a discipline to keep us out of cash flow issues. The video describes the reasons to have and the process to create those accounts for a company marketing any longer-term product that extends beyond a 1-year obligation.

Run Time: 13:36

Details on Deferred Liability Accounting

Proper accounting practice for dealing with an expense that is coming due in the future requires us to plan for that expense and define it. We call these deferred liability accounts. Establishing accounts for extended warranty, lifetime warranties, or any form of a future liability account is a key to accuracy in knowing the true value or costs of the company. The balance sheet accounts need these to show what cash we truly have access to and what we may owe in the future.

Run Time: 17:42