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After reading the material in this chapter, you should be able to: Define liabilities and distinguish between current and long-term liabilities, account for the issuance and payment of various forms of notes and record the interest on the notes, characterize accrued liabilities and liabilities from advance collection and describe when and how they should be recorded,. | CURRENT LIABILITIES AND CONTINGENCIES Chapter 13 © 2013 The McGraw-Hill Companies, Inc. Chapter 13: Current Liabilities and Contingencies. Characteristics of Liabilities . . . Result in an out flow of resources in the future. . . . Arising from past events . . . Present Obligation . . . © 2013 The McGraw-Hill Companies, Inc. Most liabilities obligate the debtor to pay cash at specified times and result from legally enforceable agreements. Obligations may arise from contracts, statutory requirements, normal business practice, custom, and a desire to maintain good business relations or to act in an equitable manner Liabilities have three essential characteristics. Liabilities: Arise from past transactions or events Are from present obligations (to transfer resources) to other entities Result in future outflow of economic benefits What is a Current Liability? LIABILITIES Long-term Liabilities Other situations: For trading purposes, or does not have the right to defer settlement for at least 12 months Current Liabilities Obligations payable within one year or one operating cycle, whichever is longer. © 2013 The McGraw-Hill Companies, Inc. In a classified balance sheet, we categorize liabilities as either current liabilities or long-term liabilities. The general definition of a current liability is an obligation payable within one year or within the company’s operating cycle, whichever is longer. However, in other situations, a firm should classify a liability as current when: It holds the liability primarily for the purpose of trading, or “Does not have an unconditional right to defer settlement of the liability for at least 12 months after the reporting period". Current Liabilities Current Liabilities Short-term notes payable Accrued expenses Cash dividends payable Taxes payable Accounts payable Unearned revenues © 2013 The McGraw-Hill Companies, Inc. Examples of obligations reported as current liabilities are: Accounts payable. Taxes payable. Unearned | CURRENT LIABILITIES AND CONTINGENCIES Chapter 13 © 2013 The McGraw-Hill Companies, Inc. Chapter 13: Current Liabilities and Contingencies. Characteristics of Liabilities . . . Result in an out flow of resources in the future. . . . Arising from past events . . . Present Obligation . . . © 2013 The McGraw-Hill Companies, Inc. Most liabilities obligate the debtor to pay cash at specified times and result from legally enforceable agreements. Obligations may arise from contracts, statutory requirements, normal business practice, custom, and a desire to maintain good business relations or to act in an equitable manner Liabilities have three essential characteristics. Liabilities: Arise from past transactions or events Are from present obligations (to transfer resources) to other entities Result in future outflow of economic benefits What is a Current Liability? LIABILITIES Long-term Liabilities Other situations: For trading purposes, or does not have the right to defer settlement .
