Accounting for Current Liabilities
There are different kinds of current liabilities that are listed on the Liabilities section of the Balance Sheet they can include the following just to name a few, Accounts Payable, Notes Payable, Interest Payable, Unearned Revenue. In the case of a business that is considered to be a bigger business they are most likely to have many more current liabilities than a smaller business. The amounts of most liabilities are known. Current liabilities are those debts that are due to be paid within a year’s time, or within the company’s current operating cycle (accounting-financial-tax.com/2009/11). Current liabilities of a known amount one of which would be Accounts Payable they come primarily from the credit purchase of materials and supplies to be used in the production of goods or in conjunction with the providing of services. Payables that arise from transactions with suppliers in the normal course of business and that are due in customary trade terms usually on average they are due in 30 days and may be stated at their face amount. However suppliers can offer a discount to the business if the purchase is paid in full on certain terms an example would be 2/10, n/30 this means that the business can take a discount of two percent if the entire amount is paid within ten days, otherwise the balance is due in 30 days. Example of an Account Payable a business made a purchase of Inventory on credit this would be documented as follows: Inventory would be debited for the amount of the purchase and Accounts Payable would be credited for the same amount. Notes Payable are more formalized obligations that may arise from the acquisition of materials and supplies used in operations or from the use of short-term credit to purchase capital assets (also applies to short-term notes payable). An example in this instance if a business was to borrow $20,000 from the bank to purchase computer equipment on a six month note at six percent...
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