Review two of your peers’ posts listed below and identify the core components of a current liability. Respond to at least two of your peers and provide recommendations to extend their thinking. Challenge your peers by asking a question that may cause them to reevaluate if their example is a current liability.
1. Discussion Post One – by A.B.
A current liability can be referred to as the obligation or debt of the company which is due within 12 months . These liabilities hold a place in the financial statements of the company known as the balance sheet . This term includes short term debt , creditors , accrued liabilities etc. The payment of these current liabilities are either through cash , or one may use the current assets to pay off the company’s debts. The most important ratios that is current ratio and quick ratio helps a business to determine whether it has enough cash or assets to clear its debts or not. Accounts payable is the most common current liability for a company . This is the amount for the goods and services purchased by the company but still due and has to be paid on a later date. Since the business is on a constant mode of hiring products or paying to the creditors , this amount tends to be huge for the company. Separating current liabilities from long term liabilities is done on the classified balance sheet . This holds same for current assets. Current assets are also segregated from long term assets in the classified balance sheet. This separation is very important for the users of financial statements. The investors , analysts, the proprietor as well as the lenders have a very important role in the company and thus these information help them to make important decisions. It is very crucial for them to know that what liabilities are to be paid in a years time and whether the company has sufficient assets to pay of its obligations. My examples of current liabilities that are collected from employees and customers by a business are gift certificates and insurance premiums or medical costs of employees.
2. Discussion Post Two – by S.Mc.
Current liabilities are obligations that must be settled within on year or the operating cycle, whichever is longest. The operating cycle is he length of time it takes to turn credit back into cash. Some examples of current liabilities are accounts payable, salaries, payable and short-term loans. Current liabilities also include amounts that are settled by the creation of another liability or provision of service. Unearned revenue is a great example. Once the service or goods are delivered, it is then transferred to revenue. From the perspective of a user of financial statements, why do you believe current liabilities are separated from long-term liabilities? I believe current liabilities should be separate from long term liabilities because it will help the company’s investors and the preparer of financial statement. Separating current liabilities from long term liabilities wills how a more accurate look at the company’s assets. It will also show the company what accounts, for example revenue, will be debited within the next year. Based on your current experience as well as any additional research you may have done, provide two examples of situations where businesses collect monies from customers and employees and report these amounts as a current liability. An example when a business collects money from customers and report it as a current liability would be a deposit made by the customer. Companies sometimes require a deposit from the customer before service or purchase to show the customer’s commitment. This would be considered unearned revenue. One the service or goods are delivered; the current liability is transferred to earned revenue. An example for a company’s employee’s would be unpaid salaries or wages for hours worked by the employee.
Reference responses according to the attached text and reference cited materials:
K Wainwright, S. (Ed.). (2012). Principles of Accounting: Volume I . San Diego, CA: Bridgepoint Education, Inc.