Chapter 9: Liabilities
Learning objective 1: understand
Understand the various types of liabilities and their accounting
effect
Liability = the present obligation of an entity to transfer an economic resource as
result of past events
1. Short-term liabilities = current liabilities due within one year
2. Long-term liabilities = noncurrent liabilities due beyond that period
Account payable (current liability)
= amounts owed for products or services purchased on account
businesses make the majority of their purchases on account
Accounts payable turnover (COGS/Av AP)
Important measure of liquidity
Measures the number of times a year a company is able to pay its
accounts payable
Accrued liabilities/ accrued expenses (current liability)
= an expense the business has incurred but not paid yet
wages and salary payable, interest payable
Deposits (current liability)
= an amount paid for securing goods, property, or services
rental and other deposits
= refundable once the service is no longer required or when the contract lapses
it is a liability when customers pay your company a deposit!
Unearned revenue (current liability)
Deferred revenues, revenues collected in advance
= the business has received the cash before earning the revenue
liability = the obligation to provide goods or services
Example of an airline: most of there sales aren’t recorded until the plane flies
Debit: cash (A): + 1.000
Credit: unearned ticket revenue (L):
+1.000
, Debit: unearned ticket revenue (L): -
500
Credit: Ticket revenue (S): +500
this happens again when the
costumer flies back.
unearned ticket revenue could also be called unearned transportation
rev
Payroll-related liabilities (current liability)
= expenses related to employee compensation
Payroll = employee compensation
= > substantial expense
Salary = employee pay stated at a monthly or yearly rate
A wage = pay stated hourly
Commission = percentage of the sales an employee has made
A bonus = amount above regular compensation
Pensions = a monthly salary after you retire
on all these forms of liabilities a tax or other kind of deduction has
to be paid
Debit: salary expense (S): -5.500
Credit: cash (A): -5.500
Sales tax payable (current liability)
Most countries have some form of consumption tax
Good and services tax
Value added tax
Sales tax
Retailers collect tax from customers and owe the tax authorities for the sales tax
collected
Debit: cash (A): + 210.00
Credit: sales revenue (S): +
200.000
Credit: Sales Tax payable (L):
+10.000
debit: sales tax payable (L): -10.000 Credit: cash (A): -10.000
Tax payable (current liability)
= prevailing tax rates * profit before tax of the business
Learning objective 1: understand
Understand the various types of liabilities and their accounting
effect
Liability = the present obligation of an entity to transfer an economic resource as
result of past events
1. Short-term liabilities = current liabilities due within one year
2. Long-term liabilities = noncurrent liabilities due beyond that period
Account payable (current liability)
= amounts owed for products or services purchased on account
businesses make the majority of their purchases on account
Accounts payable turnover (COGS/Av AP)
Important measure of liquidity
Measures the number of times a year a company is able to pay its
accounts payable
Accrued liabilities/ accrued expenses (current liability)
= an expense the business has incurred but not paid yet
wages and salary payable, interest payable
Deposits (current liability)
= an amount paid for securing goods, property, or services
rental and other deposits
= refundable once the service is no longer required or when the contract lapses
it is a liability when customers pay your company a deposit!
Unearned revenue (current liability)
Deferred revenues, revenues collected in advance
= the business has received the cash before earning the revenue
liability = the obligation to provide goods or services
Example of an airline: most of there sales aren’t recorded until the plane flies
Debit: cash (A): + 1.000
Credit: unearned ticket revenue (L):
+1.000
, Debit: unearned ticket revenue (L): -
500
Credit: Ticket revenue (S): +500
this happens again when the
costumer flies back.
unearned ticket revenue could also be called unearned transportation
rev
Payroll-related liabilities (current liability)
= expenses related to employee compensation
Payroll = employee compensation
= > substantial expense
Salary = employee pay stated at a monthly or yearly rate
A wage = pay stated hourly
Commission = percentage of the sales an employee has made
A bonus = amount above regular compensation
Pensions = a monthly salary after you retire
on all these forms of liabilities a tax or other kind of deduction has
to be paid
Debit: salary expense (S): -5.500
Credit: cash (A): -5.500
Sales tax payable (current liability)
Most countries have some form of consumption tax
Good and services tax
Value added tax
Sales tax
Retailers collect tax from customers and owe the tax authorities for the sales tax
collected
Debit: cash (A): + 210.00
Credit: sales revenue (S): +
200.000
Credit: Sales Tax payable (L):
+10.000
debit: sales tax payable (L): -10.000 Credit: cash (A): -10.000
Tax payable (current liability)
= prevailing tax rates * profit before tax of the business
