What is a current liability? Distinguish between a current liability and a long-

Question

What is a current liability? Distinguish between a current liability and a long-term debt. What is the going concern assumption? Does it affect the way liabilities are reported in the financial statements?

What is a contingent liability? List the three categories of contingent liabilities. Are contingent liabilities recorded on a company’s books? Explain.

What is the difference in accounting procedures for a liability that is probable and estimable and one that is reasonably possible but not estimable? What type of liabilities are not recorded on a company’s books?

What effect does recognizing future warranty obligations have on the balance sheet? On the income statement? When is warranty cost reported on the statement of cash flows? Which accounting principles affect how you handle warranty obligations?

What is the difference between an employee and an independent contractor? What is the difference between wages and salaries? What two taxes are components of the FICA tax? What programs do they fund? Who pays the FICA tax? Is there a ceiling on the amount of tax that is paid?

What is the difference between gross pay and net pay? What payroll items are an expense of the business? What payroll items are a liability of the business?

Explanation / Answer

Liability means present application arising from past events and the settlement of which leads to outgoing of future economic benefits. Current liability means short term liability which have to be repad within one year. Long term liability means liability which can be settled after one year or more.

Going Concern is a fundamental accounting assumptions which is useful for determining Assets and liabilities and their valuation. Going Concern affect the recognition of Assets and liabilities.

Contingent liability is a liability which is remote in nature that means it is not probable in nature. These liabilities are not recognised in the balance sheet. This type of liabilities as shown as disclosure in notes to accounts.eg.bills discounted, claims pending in Court,...etc

The liability that possible and estimate able is recognised as provision but the liability which is probable but not estimate able is treated as contingent liability. Provision is recognisable where as contingent liability is not recognisable.

Future warranty obligations are probable and estimate table so we have to show them as a provision in the balance sheet.

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