Liabilities are essentially debts – amounts payable (but not yet paid) to other entities for goods or services supplied. You will enter a new Liability when a supplier bills you for goods or services provided and you choose not to pay immediately. By entering the liability, you ensure that your Portfolio balance accurately reflects amounts due to be paid and that you have an accurate record of what is owed to whom.
Mclowd currently requires that you enter Liabilities as journals, using a double-entry (debit and matching credit). For this process, a basic understanding of double-entry bookkeeping is required.
In the following example, we have received an invoice from Super Lawyers for $1250.00 for updating our Fund Trust Deed.
To begin entry of this liability, click the LIABILITIES tab.
Mclowd displays a list of your current liabilities. (Note that thus far only your opening balance liabilities are shown and these are greyed out, because they belong to past periods.)
Click ADD NEW JOURNAL ENTRY.
Mclowd displays the Journal Entry screen.
Click the Date field to access the popup calendar and enter the date on the invoice you have received.
Enter the supplier’s Name.
Mclowd assigns a reference to your journal.
In the first row, under Member Account/Fund, select the Account (”Fund” if the supply was to the Fund, or a member account if the supply related specifically to one of the member accounts).
Under Account, select the Expense account to be debited. In our example, this would be 5-1130 Management and Administration Expenses.
Enter a Description. Ensure the description clearly identifies the transaction and enables you to trace back to the source document if required. It is suggested you include any invoice or other document reference number, the supplier’s name, and a brief description of the goods or service provided. In our example, we entered ”Invoice 372 Trust Deed Update”. The supplier’s name had already been entered in the heading.
In the Debit column, enter the amount of the invoice. This amount will add to the previous total of Management Expenses for the current financial year.
Move to the second line to enter the corresponding credit.
Enter the Fund/Member Account. (This will generally be the same account as entered on the first line, as the debt typically belongs to the same account as the expense. An exception would be where the Fund owes a debt to a Member, or a Member owes a debt to the Fund.)
Select the Account to be credited. In our example, we will credit 2-2000 Accounts Payable, because this is a typical creditor invoice.
In general, most liability items will be credited either to Accounts Payable or to Sundry Creditors, except if the debt is Income Tax Payable, in which case it would be credited to Account 2-1100, or other Tax Payable that might be credited to 6-1010.
Copy the Description used in line 1.
Enter the amount of the invoice in the Credit column. This amount will be added to the total of Accounts Payable.
Your entry should appear as:
Click ADD JOURNAL ENTRY in the bottom right corner to save the journals.
If you had viewed the Trial Balance report before making this entry, you would have seen that the total in Accounts Payable was $1350.
Checking the Trial Balance after the entry is complete will reveal that the balance has increased to $2600.
Occasionally, a single invoice will itemise a number of supplies. For example, an invoice from the Fund accountant might list charges for
- Preparing financial statements $800
- Obtaining actuarial certificate $110
- Payment to independent auditor $180
- Preparing and lodging tax returns $150
- Preparing member statements x 4 @ $80 $320
In this case, multiple line entries can be made to Debit each individual charge to the relevant expense accounts, and a single Credit entry made to Credit the total to Accounts Payable. The entry screen would appear as:
NOTE: When entering journals, Mclowd, like all double-entry accounting software, requires that Debits and Credits are always equal. Journals will not save until the total Debits and Credits shown in the box at bottom left of the screen are equal, and the Out of balance by figure is 0.00.