Flashcards in Payables Deck (10):
What is a liability?
Liabilities : Represent outsider claims to a firm's assets or are enforceable claims for services to be rendered by the firm.
What are the 3 key elements to liabilities?
Liabilities represent probable future sacrifices of economic benefits;
Liabilities are obligations to transfer assets or provide services in the future;
Liabilities are the result of past transactions or events.
What are the 2 ways to classify a liability?
(1) current liabilities (CL) or noncurrent liabilities (NCL), and (2) definite or contingent
What criteria must a current liability meet?
Due in the coming year or the operating cycle of the business, whichever is longer;
An obligation to be met by the transfer of a current asset or the "creation of another current liability."
How are current liabilities valued?
amount due, or nominal amount
How are Noncurrent Liabilities valued?
the present value of all future payments (principal and interest), discounted at the prevailing rate of interest for similar debt on the date of issuance..
What is a definite liability?
Definite liabilities are not dependent on any future event. The existence of these liabilities is determined by a current event or a past transaction or event. Definite liabilities include liabilities payable in definite amounts, those which can only be estimated and accrued liabilities that are recorded for expenses recognized before payment is made
Is sales tax a liability?
Firms collect sales taxes from their customers and periodically submit them to the state or local government. Between collection and submission of the tax, the firm has a liability to the government.
Where do payroll liabilities come from?
firms incur definite current payroll-related liabilities from two different sources:
1. Employer costs including gross salary, employer share of fringe benefits, employer share of FICA and Medicare, and federal and state unemployment tax (FUTA and SUTA). The employer recognizes an expense for these costs.
2. Employee costs withheld from paychecks including income tax withholding, employee share of FICA, Medicare and fringe benefits, and also personal expenses such as parking, union dues and others. The employer does not recognize an expense for these costs but acts as a collection point resulting in an employer liability.