Question

In: Accounting

Distinguish between current and long-term liabilities. Give an example.

ESSAY: CURRENT LIABILITIES:

Distinguish between current and long-term liabilities. Give an example.

     Explain what a deferred liability is. Give an example.

     Explain the difference between an employee payroll deduction and employer benefits. Give an

     example.

     Explain the rules regarding when and how a contingency is recorded. Give an example.

     Explain when product warranty is recorded and why it is recorded when it is. Give an example.

Solutions

Expert Solution

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CURRENT LIABILITIES

Current liabilities are Debt or liabilities that are due within one year. Current liability is part of Total liability Which is appeared in Balance sheet of company on "Liability Side". Generally current liability is settled through Cash.

Largest part of Current liabilities is Account payable. Account payable should analysis current ratio (current assets / Current liabilities) For evaluate liquidity position of company.

Example of current liabilities are Account payable, Current portion of Long term debt, note payable, Interest payable, Income tax payable, Unearned service revenue, Wages payable etc.

How to Current liability arise?

Account payable

Purchase of material or Merchandise inventory on account.

Current portion of Long term debt

When Company taken long term debts or Issued Bond payable. Principal amount will be liable to be paid within one year from at end of accounting period (Means At end of year)

Note payable

By Signing Note with Supplier.

Interest payable

Interest accrued on Bonds or notes payable or Long term debts

Income tax payable

Amount of Income tax due within One year.

Unearned service revenue

Advance cash Received from Customer (Till Now service Should not perform.)

Wages payable

Accrued wages expense to Factory labor and To be Paid In future (within One year.)

How to Current liability Decreased?

Account payable

When Company pay cash to account payable or return defective Merchandise inventory or raw material to supplier.

Current portion of Long term debt

When Company Paid Amount Due To Debt holder

Note payable

On date of maturity, Company will pay amount of notes with Interest due there on.

Interest payable

When company paid interest.

Income tax payable

When Company paid Income tax To Government or Tax Collector Body of Government.

Unearned service revenue

When Company Performed service of Customer.

Wages payable

When Company Paid wages to factory labor.


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