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Description about liabilities and GAAP

What are the criteria for classifying an item as a current liability?

What are some examples of current liabilities?

Why is it important to classify a portion of long-term debt on a yearly basis as a current liability?

What is the implication of misclassifying a liability as current or long-term?

Generally accepted accounting principles (GAAP) require loss contingencies to be accrued in the period the contingency becomes known. However, GAAP specifically disallows booking gain contingencies until the gain is realized. Do you agree or disagree? Why?

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What are the criteria for classifying an item as a current liability?
A liability is something which a firm owes to a person or another firm. It may be in the form of creditors - people or firms who have sold you goods which you have not yet paid for, or it may be money borrowed from a financial institution - loans or overdrafts. In order for the liability to be classified as current liabilities, such obligations should include obligations that are due on demand or that will become due on demand within one year from the balance sheet date.

What are some examples of current liabilities?
Current Liabilities is the money owed by a business that must be paid within one year such as Accounts Payable, Notes Payable, Dividend Payable, Income Taxes Payable, and Loan Principal and Loan Interest that is due within one year. Non-current liabilities ...

Solution Summary

This solution is comprised of a detailed explanation to answer what are the criteria for classifying an item as a current liability, what are some examples of current liabilities, why is it important to classify a portion of long-term debt on a yearly basis as a current liability, what is the implication of misclassifying a liability as current or long-term, and answer regarding the inability to book gain contingencies until the gain is realized according to GAAP.

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