CHAPTER 9: LIABILITIES
1- short term liabilities
2- long term liabilities
accountants formally define liabilities as probable or certain debts or obligations
of the entity that result from past transactions which will be paid with assets or
services.
current liabilities are short term obligations that will be paid within the current
operating cycle or within one year (whichever is longer)
→liabilities are recorded when they are probable or certain
one of important assumptions (with monetary use, accrual principle… )
is PRUDENCE
based on the prudence principle we must record expenses and liabilities also when
they are probable
revenues: recorded only if reasonably certain
if you are unsure that you will collect all the receivables: (allowance for) bad debt
expense (penso)
liabilities: will be paid with assets or services (unearned revenue if advance
payment)
the liabilities are grouped as follows
A. accounts payable : liabilities arising from purchase of goods and services
from other businesses
no rules concerning classification of account payable or notes payables
when you have a operating liability: usually short term (with no int expense): that
is an account payable
B- accrued liabilities: are those expenses incurred before the end of an accounting
period but have not been paid. accrued liabilities are recorded as adjusting entries
-accrued taxes (taxes are accrued liabilities pk we pay taxes in advance during the
year ma taxes is last adjusting entry: ci serve amount of income)
