Chapter 10 Flashcards
When is a current liability due?
A current liability is due within 12 months of the balance sheet date.
What is a provision in terms of accounting?
A provision in terms of accounting is a liability that involves uncertainty around the amount and the timing.
What is a contingency in terms of accounting?
A contingency is a potential liability that depends on the outcome of a future event.
What are some example of known (determinable) liabilities?
Accounts payable, unearned revenue, wages payable, notes payable (short term), Amount owed (current portion.) of long term debt, bank overdraft (a negative balance.)
What do we do with provisions in terms of accounting?
Provisions must be estimated so they accurately reflect the company’s financial position. So, provisions are estimated and accrued.
What are some common examples of provisions in terms of accounting. What do all of these things have in common?
Warranties, customer loyalty programs and gift certificates. All of these things must be estimated as you don’t know for certain how many of these will be turned in and when.