Its financial lever age increases also the required

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its financial lever- age increases. Also, the required liability payments increase proportionally with the level liabilities, and those larger payments imply a higher probability of default should a down in business occur. Greater levels of liabilities, then, make the company riskier to investors w consequently, demand a higher return. Assessing the appropriate level of liabilities is pan liquidity and solvency analysis. This module describes and analyzes on-balance-sheet financing, namely current and ill- - current liabilities that are reported on financial statements. If companies can find a way to
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Module 7 I Liability Recognition and Nonowner Financing 7-4 ets and have neither the asset, nor its related financing, appear on the balance sheet, report higher levels of asset turnover and appear less risky. This creates off-balance- :IDancing, which is the focus of Module 10. lIIV'UuYZING CURRENT LIABILITIES liabilities consist of both operating and nonoperating liabilities. Most currentoperating 'es such as those related to inventory (accounts payable) or to utilities, wages, insurance, d taxes (accrued liabilities), impact operating expenses such as cost of goods sold or sell- ~neral and administrative expenses. Currentnonoperating liabilities comprise short-term tes or the current portion of long-term debt. Verizon's balance sheet reports the following liabilities: At December 31 ($ millions) 2010 2009 $ 7,542 15,702 7,353 $30,597 $ 7,205 15,223 6,708 $29,136 Debt maturing within one year . Accounts payable and accrued liabilities . Other . Total current liabilities . n reports three categories of current liabilities: (1) long-term debt obligations that are ed for payment in the upcoming year, (2) accounts payable and accrued liabilities, and er current liabilities, which consist mainly of customer deposits, dividends payable, and llaneous obligations. Analysis and interpretation of the return on net operating assets (RNOA) requires that we re current liabilities into operating and nonoperating components. In general, these two nents consist of the following: Current operating liabilities Accounts payable Obligations to others for amounts owed on purchases of goods and services; these are usually non-interest-bearing. Accrued liabilities Obligations for which there is no related external transaction in the current period. These include, for example, accruals for employee wages earned but yet unpaid, accruals for taxes (usually quarterly) on payroll and current period profits, and accruals for other liabilities such as rent, utilities, and insurance. Companies make accruals to properly reflect the liabilities owed as of the financial statement date and the expenses incurred for the period. Unearned revenue Obligations to provide goods or services in the coming year; these arise from customers' deposits, subscriptions, or prepayments.
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