What are unrecorded liabilities?

As the name suggests, unrecorded liabilities means the liabilities that a firm fails to record in its book of accounts.

Usually, a firm gets to know about its unrecorded liabilities when it is about to get dissolved. What happens is that upon hearing that a firm is going to dissolve in near future, its creditors and lenders report to the firm about their dues.

At that time, a firm may get to know that it had failed to record some liabilities in its books and it has settled them now.

We know that when a partnership firm is dissolved, a realisation account is created to which all the assets and liabilities of the firm are transferred.  Entries are as given below:

Realisation A/c     Dr.      ₹ Amt

To Assets A/c                  ₹ Amt

( Asset transferred to realisation account)

Liabilities A/c    Dr.        ₹ Amt

To Realisation A/c       ₹ Amt

(Liabilities transferred to realisation account)

Hence, for transferring unrecorded liabilities, the procedure is the same for the recorded liabilities:

Unrecorded Liabilities A/c        Dr.     ₹ Amt

To Realisation A/c                               ₹ Amt

( Unrecorded liabilities transferred to realisation account)

Then to pay off the unrecorded liability the entry is:

Realisation A/c     Dr.    ₹ Amt

To Cash / Bank A/c       ₹ Amt

(Unrecorded liabilities paid off)

That’s it, I hope I was able to make you understand.