Current Liabilities Flashcards
Define Liability:
Obligation to transfer assets
Unavoidable
The result of a past transaction or event
What are the types of liabilities
Operating liabilities (usually current: A/P, unearned revenue)
Financing liabilities (current or non current, bonds or notes liabilities)
Special Liabilities (contingencies)
What is the difference between definite and contingent liabilities
Definite liabilities exist at the balance sheet date
Contingent liabilities- not certain at the balance sheet date that depends on a future event. Recognized on the balance sheet date if it is probable and can be estimated.
Define current liability:
Will be extinguished within one year or operating cycle (whichever is longer) with current assets or through other current liabilities
How are current liabilities measured on the balance sheet?
usually current liabilities are non interest bearing and are reported at nominal value
If a company continuously refinances current portions of their current portion of their note payable, it will remain a current liability
True, if they continuously refinance every year, that portion will remain as a current liability
How are non current liabilities reported on the balance sheet?
Non current are reported at present value of all future payments and can also be valued at fair value if the company chooses the fair value option
If you settle a note payable with stock rather than cash and it is due within one year, how is that classified?
Non current BECAUSE it does not meet the definition of a current liability. With non current assets not being reduced, it doesn’t meet the definition.
If debt is callable, how is it classified on the balance sheet?
If a note is callable, meaning it can be called at any point, it has to be classified as non current on the balance sheet regardless of when the note matures.
If a debt covenant, how is that classified?
Non current unless the company can restructure their terms with the bank.
If a company refinances current liability with a long-term note, what is required in the financial statements?
- Disclosure
- Classify as non current
