from a pure technical standpoint, the liability should not be reflected. from a practical standpoint the liability can be reflected since the deduction is allowed for the year of the return rather than in the year actually paid. this is similar to credit card debt for which the tax laws allow a deduction in the year the debt was incurred even though the debt is not paid until future years. when i was working for CPA firms we always reflected the 401k, pension and other liabilities if the deduction was allowed for the year of the return. this was to avoid M-1 adjustments. other firms might have done it differently. we never had an issue even when the iRS audited returns because the taxable income was correct even though cash method was specified. some might argue that on the return you should check other for the accounting method and list "hybrid" but if you change it you may get an inquiry from the IRS about changing accounting methods without filing form 3115.
i would say continue as you have done in the past and your friends can handle it their way. so ny position is that there is no right or wrong method so this battle ends in a draw.
this is from the iRS pub on accounting methods
"Under the cash method, generally, you deduct expenses in the tax year in which you actually pay them." if this was an absolute you could not deduct the 401K contribution for 2022 until 2023 when you paid it. but the tax law does allow the deduction in 2022.
