Introduction to
Accounting
18 October 2016
Session 17
Agenda
•
Attendance
•
Quiz results
•
Module 1: Liabilities (Not in the study
materials)
•
Module 2: Account Payable (Not in the
study materials)
•
25 October Quiz: Liabilities & Account
Payable
Objectives
•
Understand the definition of liabilities
•
Understand how to record account
payable and accrued expense in the
book
•
Understand invoice credit terms
The Accounting Equation
Chapter
1
When a business is set up by its owner
and is funded by vendors and lenders,
the equation looks like:
Equity
Liabilit
ies
Assets
Liabilities
•
Amounts owned to vendors and lenders.
•
Amounts owned by a business which has a legal
binding obligation to another business, or entity.
•
Liabilities are incurred in order to fund the
ongoing activities of a business.
•
Liabilities often have the word "payable" in the
account title. Examples of liabilities are
accounts payable, or wages payable.
•
Liabilities also include amounts received in
advance for a future sale or for a future service
to be performed. Examples of unearned
revenues.
Liabilities
•
Current liabilities:
Liabilities expected to be
settled within one year are classified as
current liabilities on the balance sheet.
Examples of account payable, wages payable,
current term portion of loan payable and etc.
•
Non-current, or long-term liabilities:
All
other liabilities are classified as long-term
liabilities. Example of customer deposits, long
term portion of loan payable.
Liabilities
•
When a company orders and receives goods
(or services) in advance of paying for them,
we say that the company is purchasing the
goods
on account
or
