chapter 9 notes

chapter 9 notes - term the liability is divided into...

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Reporting and Analyzing Current Liabilities I. Characteristics of liabilities A. Liability: a probable future payment of assets or services that a company is presently obligated to make as a result of past transactions 1. Exists because of a past transaction or event 2. A present obligation 3. Future payment of assets or services B. Classifying liabilities 1. Importance: need to know when obligations are due so planning and appropriate action and take place 2. Current liabilities a) Also called short-term liabilities b) Due within the longer of one year or one operating cycle c) Paid using current assets or by creating other current liabilities d) Liabilities with no fixed due date are considered current 3. Long term liabilities a) Due not due within the longer of one year or one operating cycle b) Exception: if a company decides to make payments in both the long and short
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Unformatted text preview: term the liability is divided into current and non-current sections C. Uncertainty in liabilities 1. Uncertainty in whom to pay a) Example: a note for which a specific amount is payable to the note's holder on a specific date; holder in unknown until the maturity date b) Liability is reported on the balance sheet 2. Uncertainty in when to pay a) Example: legal services agency accepts fees in advance, creating a liability that is settled when legal issues arise b) Reported as current liabilities c) Liability is reported on the balance sheet 3. Uncertainty in how much to pay a) Example: when using electric power, the cost is incurred and the liability is created before a bill is received b) Liability is reported on the balance sheet c) If balance sheet is prepared before bill is received, liability amount is estimated...
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This note was uploaded on 02/09/2012 for the course ACCT 1310 taught by Professor Staff during the Fall '10 term at Texas State.

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chapter 9 notes - term the liability is divided into...

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