Financial Accounting - Current Liabilities
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Transcript of Financial Accounting - Current Liabilities
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Current liabilitiesCurrent liabilitiesCurrent liabilitiesCurrent liabilities
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DefinitionDefinition
- Present obligations of an enterprise arising from past transactions or events, the settlement of which is expected to result in an outflow from the enterprise of resources embodying economic benefits
-Obligation to pay money or to provide goods or services
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Recognition of Recognition of liabilitiesliabilities
- A liability is recorded and reported on the balance sheet when the following conditions are met:
-It is probable that an outflow of resources embodying economic benefits will result from the settlement of a present obligation; and
-The amount at which the settlement will take place can be measured reliably
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Current LiabilitiesCurrent Liabilities
- Obligations whose liquidation is reasonably expected to require the use of existing resources properly classified as current assets or the creation of other current liabilities
-It is expected to be settled in the normal course of the enterprise’s operating cycle, or
-Is due to be settled within twelve months from the balance sheet date.
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Examples of current Examples of current liabilitiesliabilities
- Accounts payable and trade notes payable
-Short-term notes payable
-Accrued expenses
-Income taxes payable, VAT payable, payroll taxes
-Provisions
-Dividends payable
-Credit balances in customer’s accounts
-Deposits and advances
-Current portion of long-term debts
-Deferred credits
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ProvisionsProvisions- Liabilities of uncertain timing or amount
-Recognized in the balance sheet when, and only when:
-An enterprise has a present obligation (legal or constructive as a result of a past event;
-It is probable (i.e., more likely than not) that an outflow of resources embodying economic benefits will be required to settle the obligation; and
-A reliable estimate can be made of the amount of the
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Contingent liabilityContingent liability
- A possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the enterprise; or
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Example of ProvisionsExample of Provisions
- Product of Service Warranties
-Provision Arising from Customers Premium Offers
-Bonus