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Current liabilitiesCurrent liabilitiesCurrent liabilitiesCurrent liabilities

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DefinitionDefinition

- Present obligations of an enterprise arising from past transactions or events, the settlement of which is expected to result in an outflow from the enterprise of resources embodying economic benefits

-Obligation to pay money or to provide goods or services

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Recognition of Recognition of liabilitiesliabilities

- A liability is recorded and reported on the balance sheet when the following conditions are met:

-It is probable that an outflow of resources embodying economic benefits will result from the settlement of a present obligation; and

-The amount at which the settlement will take place can be measured reliably

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Current LiabilitiesCurrent Liabilities

- Obligations whose liquidation is reasonably expected to require the use of existing resources properly classified as current assets or the creation of other current liabilities

-It is expected to be settled in the normal course of the enterprise’s operating cycle, or

-Is due to be settled within twelve months from the balance sheet date.

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Examples of current Examples of current liabilitiesliabilities

- Accounts payable and trade notes payable

-Short-term notes payable

-Accrued expenses

-Income taxes payable, VAT payable, payroll taxes

-Provisions

-Dividends payable

-Credit balances in customer’s accounts

-Deposits and advances

-Current portion of long-term debts

-Deferred credits

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ProvisionsProvisions- Liabilities of uncertain timing or amount

-Recognized in the balance sheet when, and only when:

-An enterprise has a present obligation (legal or constructive as a result of a past event;

-It is probable (i.e., more likely than not) that an outflow of resources embodying economic benefits will be required to settle the obligation; and

-A reliable estimate can be made of the amount of the

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Contingent liabilityContingent liability

- A possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the enterprise; or

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Example of ProvisionsExample of Provisions

- Product of Service Warranties

-Provision Arising from Customers Premium Offers

-Bonus