Estimated Liabilities

Topics: Estimation, Approximation, Holidays Pages: 1 (279 words) Published: June 25, 2012
Estimated liabilities are a known obligation that is of an uncertain amount but that can be reasonable estimated. Common examples are employee benefits such as pensions, heath care and vacation pay, and warranties offered by a seller (Fundamental Accounting Principles, Chapter 11, Pg 437). When a firm sells products or renders services with a warranty, the firms has an obligation towards the customer when the warranty is honored. The warranty liability is an estimate of the obligations. Hence, a product warranty for some product is based on expected breakdowns, the probability that the product is returned for repair, and estimates for material and labor needed to repair the product. Obligation or service that actually exists but the amount requires estimation. Examples are estimated taxes payable and warranties payable (Barron's Educational Series, Inc). Another estimated liability is vacation benefits, also known as paid absences. Every employee is offer paid vacation benefits, whether you take it or not is up to you. Companies that grant paid vacations to their employees must expense the benefit as the employee works to match revenue and expenses properly, rather than expense the vacation when taken. In the above information I have explain what estimated liabilities was and gave you two examples. The biggest estimated liabilities are vacation benefits because you don’t know if your employers will take their vacation or not. Warranties are never a guarantee of what liability that you would have to use, so much may go wrong or nothing at all could happen, you never know. The key word is estimated because at the end you’re estimating if this or that will happen.

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