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Unformatted text preview: CHAPTER 13 CURRENT LIABILITY; CONTINGENCIES WHAT IS A LIABILITY: LIABILITY: (the FASB defined it as) probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events. 1. it is a present obligation that entails settlement by probable future transfer or use of cash, goods, or services 2. it is an unavoidable obligation 3. the transaction or other event creating the obligation has already occurred (It refers to money owed to complete a transaction, debt that has yet to be paid, or products or services that have been paid for but have not yet been rendered.)- liability involve future disbursements of assets or services, one of their most important features is the date on which they are payable CURRENT LAIBILITY: obligation whose liquidation is reasonably expected to require use of existing resources properly classified as current assets, or the creation of other current liabilities Operating cycle: is the period of time elapsing between the acquisition of goods and services involved in the manufacturing process and the final cash realization from sale and subsequent collections. EXAMPLES OF CURRENT LIABILITY: 1. Account payable 2. Notes payable 3. Dividends payable 4. Sales tax payable 5. Income tax payable 6. Employee-related liabilities 7. Current maturities of long-term debt 8. Short-term obligation expected to be refinanced 9. Customer advances and deposits 10. Unearned revenue ACCOUNT PAYABLE: balance owed to others for goods, supplies, or services purchased on open account. A/P arise because of the time lag between the receipt of services or acquisition of title to assets and the payment for them.- record liability for purchases upon receipt - if title passed to the purchaser before the receipt, record the transaction at the time of title passage. - Pay special attention of transactions occurring near the end of one accounting period and at the beginning. - Make sure that record of goods received (inventory) agrees with liability (A/P), and that it is recorded both in the proper period NOTES PAYABLE: written promise to pay a certain sum of money on a specified future date from purchases, financing, or other transactions....
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This note was uploaded on 09/29/2011 for the course LAW 1001 taught by Professor Fitzsoman during the Spring '11 term at CUNY Hunter.

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