Category: 

What Is a Liability Ledger?

Article Details
  • Written By: Ray Hawk
  • Edited By: E. E. Hubbard
  • Last Modified Date: 18 September 2014
  • Copyright Protected:
    2003-2014
    Conjecture Corporation
  • Print this Article
Free Widgets for your Site/Blog
Coloring your hair in the ‘30s often came with swollen eyelids, blisters and headaches.  more...

October 21 ,  1879 :  Thomas Edison lit up a light bulb for the first time.  more...

A liability ledger is a financial record held by banks that documents all of the bank's current outstanding loans and which is directly tied to its general ledger. Since loans are the primary way that banks earn a profit, the liability ledger is a statement of the bank's earnings at the same time. In the past, a liability ledger used to consist of unique ledger cards for each borrower with several vertical columns listing details of the loan, which could be arranged into a book form. When a loan was paid off, the bank manager would merely draw a red line through the entry in the ledger. Many banks as of 2011 have gone to an electronic format in their loans department for storing liability ledger data.

As a loan is repaid to a bank, the entry is updated both in the liability ledger and in the bills discounted section of the bank's general ledger. Keeping accurate track of such banking activity is known as liability management and is particularly important for multinational banks that borrow and lend to other banks. In this case, the liability ledger is referred to as a contingent liability ledger, and is used to record every credit issued by a foreign bank or individual to the bank keeping the records. This, therefore, represents the contingent liability of the bank to its foreign commercial creditors.

Ad

Banking practices can become quite complex as banks lend to other banks across national borders or hold the assets of foreign entities. The liability ledger becomes multi-layered to accommodate this. Credits are first grouped by bank or individual in the ledger, then grouped under unique accounts. Each of these accounts are further subdivided into regions by city, province, and country of origin. This makes it easier to trace back in the ledger to a specific region of banking activity, such as all accounts held for German banking concerns by the bank of New York in the US. This information is considered so important that it is a general rule that every week a report is generated by the bank for its officers and foreign affiliated bookkeepers as to the status of the accounts.

The liability ledger is the direct opposite of the deposit ledger that banks hold to keep records of current deposits made and which are on-hand. While the deposit ledger is a record of how much the bank owes to its customers, far more activity usually takes place in the liability ledger, as it is the center of the bank's business through its loan department. This is especially true if the bank is involved in large corporate transactions as opposed to being focused on local consumer services.

Ad

More from Wisegeek

You might also Like

Discuss this Article

Post your comments

Post Anonymously

Login

username
password
forgot password?

Register

username
password
confirm
email