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AC 101 Fall 2007 Ch 10

AC 101 Fall 2007 Ch 10 - Operating Liabilities Recognition...

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Click to edit Master subtitle style Operating Liabilities: Recognition and Disclosure Chapter Ten Prepared by: Sarita Sheth Santa Monica College
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Chapter Ten Objectives 1. Determine when to recognize a liability. 2. Understand the accounting treatment of account payables, accrued liabilities, deferred revenue, and restructuring charges. 3. Recognize the disclosure requirements for contingent liabilities. 4. Explain the concept of income tax and financial reporting timing differences. 5. Identify the disclosure requirements associated with company-provided pension and other post-retirement benefits.
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Liability Recognition l A liability is a probable future sacrifice of resources. l The entity that is obligated has little or no discretion to avoid the future sacrifice. l The transaction or event that gives rise to the obligation has already occurred. l Accounting conservatism dictates liabilities be recognized earlier than assets.
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Balance Sheet Classification l Current liabilities: Liabilities are due within a year. l Noncurrent liabilities: Long term debts and obligations due in more than one year. l Operating liabilities: Debts that occur in the normal course of business. l Notes payable: Promise to pay an amount in the future. l Could be current or noncurrent l Can be a long term debt with a current installment (a portion is due within one year)
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Accounts Payable l Accounts payables occur during the normal course of business when the company buys goods or services on credit.
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