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Chapter 9 - Chapter 9 Reporting and Interpreting...

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Chapter 9: Reporting and Interpreting Liabilities LIABILITIES DEFINED AND CLASSIFIED Liabilities : probable debts or obligations resulting from past transactions which will be paid with assets or services Liability recorded as current cash equivalent (principle amount) Interest accrues and becomes liability over time Current liabilities : short term obligations that will be paid within current operating cycle or one year, whichever is longer Liquidity : ability to pay current obligations CURRENT LIABILITIES Specific operating activities are financed by a related current liability Accounts payable Trade accounts payable (another name for accounts payable) Interest does not accrue on an accounts payable Accrued liabilities Accrued liabilities : expenses incurred but have not been paid at end of accounting period (ex: electricity, salaries); recorded as adjusting entries at year-end Accrued taxes payable o Pay taxes on income earned Accrued compensation and related costs o Salaries not yet paid, unpaid benefits, retirement programs, vacation time, health insurance Payroll taxes o Employee income taxes (withheld by employer from employee as current liability; referred to as Federal Income Tax Withheld or FITW ) o Employee FICA taxes (Social security taxes imposed in equal amounts on employer and employee o See example on pg. 468
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