Notes - Chapter 13

Notes - Chapter 13 - Chapter 13: Current Liabilities...

Info iconThis preview shows pages 1–4. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter 13: Current Liabilities Liability: A probable future payment of assets or services that a company is presently obligated to make as a result of past transactions or events. There are three crucial factors that make up part of the definition of a liability: They are due to past transactions or events. The company has a present obligation. It is for a future payment of assets or services. Liabilities do not include all expected future payments. Liabilities are recorded when the transaction has occurred as per the revenue recognition principle. Example: XYZ Corporation has a total yearly payroll of $6,000,000. Staff is paid on the first of every month for the prior month’s work. Therefore, we need to accrue payroll expenses each month-end since the work has occurred but has not yet been paid out. Entry: Jan. 31 Payroll Expense 500,000 Wages Payable 500,000 To accrue wages for January ($6,000,000 / 12 = $500,000) Classifying Liabilities: Current Liabilities: Expected to be paid within one year of the balance sheet date or within the operating cycle of the business, whichever is longer, using current assets. Demand loans are loans that have no fixed due date. They are reported as a current liability because the creditor may demand payment within one year of the balance sheet or the company’s operating cycle, whichever is longer. Examples include accounts payable, wages payable, warranty liabilities and unearned revenue. Page 1 of 8
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Chapter 13: Current Liabilities Page 2 of 8
Background image of page 2
Chapter 13: Current Liabilities Classifying Liabilities (continued): Long-Term Liabilities: Do not require payment within one year or the current operating cycle, whichever is longer. Expected to be paid out of non-current assets. Examples include long-term liabilities, lease liabilities, and bonds payable. Current Portion of Long-Term Debt: The part of a long term liability which is due within one year of the balance sheet date or one operating, cycle, whichever is longer. Reported as a current liability on the balance sheet.
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 4
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 8

Notes - Chapter 13 - Chapter 13: Current Liabilities...

This preview shows document pages 1 - 4. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online