Question

Research Walmart company and discuss the current and long-term liabilities shown on its balance sheet and their purpose as documented by management.

Answer the following three questions: In your initial post answer the following:

Define a liability and how it can be used to manage a company's cash flow.

From your selected company, what two types of liabilities make up the largest percent of its current liabilities.

What are the liabilities used for.

Answer 1

Define - Liability :- In financial accounting, a liability is defined as the future sacrifices of economic benefits that the entity is obliged to make to other entities as a result of past transactions or other past events, the settlement of which may result in the transfer or use of assets, provision of services or other yielding of economic benefits in the future.

A liability is defined by the following characteristics:-

• Any type of borrowing from persons or banks for improving a business or personal income that is payable during short or long time;
• A duty or responsibility to others that entails settlement by future transfer or use of assets, provision of services, or other transaction yielding an economic benefit, at a specified or determinable date, on occurrence of a specified event, or on demand;
• A duty or responsibility that obligates the entity to another, leaving it little or no discretion to avoid settlement; and,
• A transaction or event obligating the entity that has already occurred.

Liabilities in financial accounting need not be legally enforceable; but can be based on equitable obligations or constructive obligations. An equitable obligation is a duty based on ethical or moral considerations. A constructive obligation is an obligation that is implied by a set of circumstances in a particular situation, as opposed to a contractually based obligation.The accounting equation relates assets, liabilities, and owner's equity:-Assets = Liabilities + Owner's Equity.

Probably the most accepted accounting definition of liability is the one used by the International Accounting Standards Board (IASB). The following is a quotation from IFRS Framework:-A liability is a present obligation of the enterprise arising from past events, the settlement of which is expected to result in an outflow from the enterprise of resources embodying economic benefits.

Implications of Liability on company's cashflow:- If balance of a liability increases, cash flow from operations will increase. If balance of a liability decreases, cash flow from operations will decrease.

The accounting equation is Assets = Liabilities + Owner's (Stockholders') Equity. ... When the company borrows money from its bank, the company's assets increase and the company's liabilities increase. When the company repays the loan, the company's assets decrease and the company's liabilities decrease.

Research work:- In Walmart, from the Annual report of the year 2020, it can be observed that the amount of Total Current Liabilities is $77,790 and the amount of Long term liabilities is $64,192.

The purpose documented by management for incurring current liabilities are Short term borrowings, Accooounts payable, Accrued liabilities, Accrued Income Taxes and Leases.

The purpose documented by management for incurring Long Term Liabilities are LOng Term Debts Deferred Income Tax and Leases,

Q:-From your selected company, what two types of liabilities make up the largest percent of its current liabilities?

It can be obsereved that the major part of current liabilities consists of Accounts Payable and Accrued Liabilities.Whereas, the major part in case of long term debts consists of Long term loan.

Overall, while analysing the sum of current liabilities and long term liabilities, it can be significantly observed that the major part consists of lease obligations both short term and long term.The lease obligations are operating lease, financing lease and capital lease.

What are the liabilities used for? Companies use liability accounts to maintain a record of unpaid balances to vendors, customers or employees. As part of the balance sheet, it gives shareholders an idea of the health of the company. Liabilities represent an important aspect of supply and demand in the economy.