Unrecorded Liabilities meaning
Unrecorded liabilities means that as of today the liability is having zero Book value.. Unrecorded liabilities can be of two types :
- Those liabilities which were not recorded in the books of accounts so now they have zero Book value
- Those liabilities which were recorded in the books of accounts but now they are completely written back
Completely written back means that their Book value is fully transferred to profit and loss account and now such liabilities have zero Book value.
How adjustment given in the question
- Unrecorded liability for creditors of Rs 5000 are to be accounted
- Unrecorded liability towards suppliers was Rs 5000.
- Creditors were unrecorded to the extent of Rs 5000.
- A Creditor of Rs 5000 not mentioned in Balance Sheet were to be taken into account.
Whatever the language in question is, the adjustment will be done in similar manner as explained below
Understand the adjustment
We know that creditors are liabilities. So we have some liability which is not having any book value. When we record it in books of accounts then the book value of the liability will increase from zero to the current market value as per question. Since there is increase in Book value of a liability so there will be loss on revaluation.
Unrecorded Liability Journal Entry
- Revaluation A/c Dr..
- To Respective Liability A/c
Since there is increase in liability value so the liability account will get credited. If we take example of creditors then sundry creditors account will be credited.
Since we have loss on revaluation so revaluation account will get debited.
Unrecorded Liability in Revaluation Account
| Particulars | Amount | Particulars | Amount |
| To Unrecorded liability A/c | 5000 |
Since there is loss so it will be shown on debit side of revaluation account. Replace the unrecorded liability by the name of liability as per question. Remember to replace the word unrecorded liability by the name of liability like creditors, bills payable, etc. as given in question.
Unrecorded Liability in Balance Sheet
| Liabilities | Amount | Assets | Amount |
| Unrecorded Liability | +5000 |
In our example the value of creditors will increase by Rs 5,000. Remember to replace the word unrecorded liability by the name of liability like creditors, bills payable, etc. as given in question.
Unrecorded Liabilities in Partner Capital A/c
There will be no impact of this adjustment in the partner capital account.
Finally
The question can give any liability like Bills Payable, Bank Loan, etc. The accounting treatment will remain same irrespective of the type of liability.
