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From page 8-1 of the VLN, what makes a liability a current liability? O It matures more than a year, or the operating cycle, whichever is longer. O It will be paid with a long term asset. O It will come due within a year of the balance sheet date.

From page 8-1 of the VLN, what makes a liability a current liability? O It matures more than a year, or the operating cycle, whichever is longer. O It will be paid with a long term asset. O It will come due within a year of the balance sheet date.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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From page 8-1 of the VLN, what makes a liability a current liability? O It matures more than a year, or the operating cycle, whichever is longer. O It will be paid with a long term asset. O It will come due within a year of the balance sheet date. O All of the answers describe what makes a liability current.
Transcribed Image Text:From page 8-1 of the VLN, what makes a liability a current liability? O It matures more than a year, or the operating cycle, whichever is longer. O It will be paid with a long term asset. O It will come due within a year of the balance sheet date. O All of the answers describe what makes a liability current.
PART A: CURRENT LIABILITIES Liabilities 1) Probable future sacrifices of economic benefits 2) Arising from present obligations to other entities 3) As a result of past transactions or events Current liabilities are short-term obligations that will be paid within the current operating cycle or one year, whichever is longer (normally one year). Current liabilities are recorded at face value because the time to maturity is short. Non-current liabilities include all other liabilities that are not current liabilities. Non-current liabilities are recorded at their cash equivalent amount (present value). Cash equivalent- (the cash amount that the creditor would accept to settle the liability today) -Does not include interest until interest has accrued Order of Liabilities on Balance Sheet -Current Liabilities go first, then -Long term (non-current) Liabilities CURRENT LIABILITIES Notes Payable (could be current or non-current) -Evidenced by a contract -Includes interest Interest Calculation (Revisited...again) Px R x T P = Principal (FACE Value) is the amount borrowed R = Annual interest rate T = length of time the money was used this accounting period (fraction of year).
Transcribed Image Text:PART A: CURRENT LIABILITIES Liabilities 1) Probable future sacrifices of economic benefits 2) Arising from present obligations to other entities 3) As a result of past transactions or events Current liabilities are short-term obligations that will be paid within the current operating cycle or one year, whichever is longer (normally one year). Current liabilities are recorded at face value because the time to maturity is short. Non-current liabilities include all other liabilities that are not current liabilities. Non-current liabilities are recorded at their cash equivalent amount (present value). Cash equivalent- (the cash amount that the creditor would accept to settle the liability today) -Does not include interest until interest has accrued Order of Liabilities on Balance Sheet -Current Liabilities go first, then -Long term (non-current) Liabilities CURRENT LIABILITIES Notes Payable (could be current or non-current) -Evidenced by a contract -Includes interest Interest Calculation (Revisited...again) Px R x T P = Principal (FACE Value) is the amount borrowed R = Annual interest rate T = length of time the money was used this accounting period (fraction of year).
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