Exam 6 Flashcards
What is a liability?
An obligation of the entity to make a payment or provide a service to another entity, based on a past transaction or event.
Liabilities are critical in understanding an entity’s financial obligations.
What is a current liability?
A liability that is required to be paid within one year.
Current liabilities are important for assessing short-term financial health.
List common current liabilities.
- Accounts payable
- Wages payable
- Interest payable
- Taxes payable
- Advances from customers
- Current portion of long-term debt
- Estimated liabilities for warranties
These items are essential for managing short-term obligations.
What are noncurrent or long-term liabilities?
Liabilities that are expected to be paid more than a year from today.
Understanding long-term liabilities helps in evaluating long-term financial stability.
List common long-term liabilities.
- Notes payable
- Pension liabilities
- Bonds payable
- Obligations under capital leases
These liabilities impact long-term financial planning.
