ch13Summary - CHAPTER 13 Current Liabilities and...

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CHAPTER 13 Current Liabilities and Contingencies LEARNING OBJECTIVES 1. Describe the nature, type and valuation of current liabilities. 2. Explain the classification issues of short-term debt expected to be refinanced. 3. Identify types of employee-related liabilities. 4. Identify the criteria used to account for and disclose gain and loss contingencies. 5. Explain the accounting for different types of loss contingencies. 6. Indicate how to present and analyze liabilities and contingencies. CHAPTER REVIEW 1. Chapter 13 presents a discussion of the nature and measurement of items classified on the balance sheet as current liabilities. Attention is focused on the mechanics involved in recording current liabilities and financial statement disclosure requirements. Also included is a discussion concerning the identification and reporting of contingent liabilities. Current Liabilities 2. (L.O. 1) In general, liabilities involve future disbursements of assets or services. According to the FASB, a liability has three essential characteristics: (a) it is a present obligation that entails settlement by probable future transfer or use of cash, goods, or services; (b) it is an unavoidable obligation; and (c) the transaction or other event creating the obligation has already occurred. Liabilities are classified on the balance sheet as current obligations or long-term obligations. Current liabilities are those obligations whose liquidation is reasonably expected to require use of existing resources classified as current assets or the creation of other current liabilities . 3. The relationship between current assets and current liabilities is an important factor in the analysis of a company’s financial condition. Thus, the definition of current liabilities for a particular industry will depend upon the time period (operating cycle or one year, whichever is longer) used in defining current assets in that industry. Accounts Payable 4. Accounts payable represents obligations owed to others for goods, supplies, and services purchased on open account. These obligations, commonly known as trade accounts payable, should be recorded to coincide with the receipt of the goods or at the time title passes to the purchaser. Attention must be paid to transactions occurring near the end of one accounting period and at the beginning of the next to ascertain that the record of goods received (inventory) is in agreement with the liability (accounts payable) and that both are recorded in the proper period.
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Notes Payable 5. Notes payable are written promises to pay a certain sum of money on a specified future date and may arise from sales, financing, or other transactions. Notes may be classified as short-term or long-term, depending on the payment due date. 6.
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ch13Summary - CHAPTER 13 Current Liabilities and...

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