Chapter 11 Current Liabilities ACCOUNTING FOR CURRENT LIABILITIES

Chapter 11 Current Liabilities

ACCOUNTING FOR CURRENT LIABILITIES A current liability is a debt that can reasonably be expected to be paid 1. from existing current assets or in the creation of other current liabilities and 2. within one year or the operating cycle, whichever is longer.

ACCOUNTING FOR CURRENT LIABILITIES l Types of liabilities 1) 2) 3) Definitely determinable Estimated Contingent

ACCOUNTING FOR CURRENT LIABILITIES Definitely determinable current liabilities include: 1. Operating line of credit 2. Accounts and notes payable 3. Sales tax payable 4. Payroll and employee benefits 5. Unearned revenues 6. Current maturities of long-term debt

OPERATING LINE OF CREDIT • A pre-authorized demand loan, allowing the company to write cheques up to a preset limit when needed. • Disclosed by footnote and by reporting any resulting bank overdraft as a current liability.

NOTES PAYABLE • Notes Payable are obligations in the form of written promissory notes that usually require the borrower to pay interest. • Notes payable may be used instead of accounts payable because it supplies documentation of the obligation in case legal remedies are needed to collect the debt. • Notes due for payment within one year of the balance sheet date are usually classified as current liabilities.

SALES TAXES PAYABLE • Sales tax is expressed as a stated percentage of the sales price of goods sold to customers by a retailer. • Sales tax includes the goods and service tax (GST), provincial sales tax (PST) or harmonized sales taxes (GST and PST combined). • The retailer (or selling company) collects the tax from the customer when the sale occurs, and periodically (usually monthly) remits the collections to the government.

PAYROLL AND EMPLOYEE BENEFITS • Salaries or wages payable represent the amounts owed to employees for a pay period. • Payroll withholdings include federal and provincial income taxes, Canada Pension Plan (CPP) contributions, and employment insurance (EI) premiums. • Employees may also voluntarily authorize withholdings for charity, retirement, medical, or other purposes. • Payroll withholdings are remitted to governmental taxing authorities.

UNEARNED REVENUES • Unearned Revenues (advances from customers) occur when a company receives cash before a service is rendered. • Examples are when an airline sells a ticket for future flights or when a lawyer receives legal fees before work is done.

CURRENT MATURITIES OF LONG-TERM DEBT • Another item classified as a current liability is current maturities of long-term debt. • Current maturities of long-term debt are often identified on the balance sheet as long-term debt due within one year.