Current Liabilities - adjusting entries for some current...

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Current Liabilities What is a Current Liability? You have learned that liabilities are defined as “creditors' claims on total assets” and as “existing debts and obligations.” Companies must settle or pay these claims, debts, and obligations at some time in the future by transferring assets or services. The future date on which they are due or payable (the maturity date) is a significant feature of liabilities. As explained in Chapter 2 , a current liability is a debt that a company reasonably expects to pay (1) from existing current assets or through the creation of other current liabilities, and (2) within one year or the operating cycle, whichever is longer. Debts that do not meet both criteria are long-term liabilities . Helpful Hint In previous chapters we explained the entries for accounts payable and the
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Unformatted text preview: adjusting entries for some current liabilities. Financial statement users want to know whether a company's obligations are current or long-term. A company that has more current liabilities than current assets often lacks liquidity, or short-term debt-paying ability. In addition, users want to know the types of liabilities a company has. If a company declares bankruptcy, a specific, predetermined order of payment to creditors exists. Thus, the amount and type of liabilities are of critical importance. The different types of current liabilities include notes payable, accounts payable, unearned revenues, and accrued liabilities such as taxes, salaries and wages, and interest. In the sections that follow, we discuss a few of the common and more important types of current liabilities....
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