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Chapter 10

Chapter 10 BU227.docx

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Wilfrid Laurier University
Carolyn Mac Tavish

BU227 Chapter 10 – Reporting and Interpreting Current Liabilities Week 9 Liabilities Defined and Classified -Liabilities – debts or obligations arising from past transactions that will be paid with assets or services -When a liability is first recorded, it is measured in terms of its current cash equivalent, which is the cash amount that a creditor would accept to settle the liability immediately -Current liabilities – short-term obligations that will be paid within the normal operating cycle or one year, whichever is longer -These are obligations that must be paid in the near future -Liquidity – the ability to pay current obligations CURRENT RATIO = Current assets / Current liabilities -Working capital – the difference between current assets and current liabilities -Working capital has a significant impact on the health and profitability of a company -The current ratio and working capital are measures of a company’s liquidity Current Liabilities Trades Payable Accrued Liabilities -Accrued liabilities – expenses that have been incurred but have not been paid at the end of the accounting period Income Taxes Payable -Corporations must pay tax at the appropriate federal and provincial rate on income from active business operations, property income, and capital gains arising from the sale of assets -Income tax expense has a current portion and a deferred portion -The current portion is payable within prescribed time limits but the deferred portion arises because of differences between the accounting rules use for financial reporting and the tax rules corporations Taxes Other than Income Taxes -These taxes depend on the industry and geographical location -These taxes add to the cost of producing and selling goods and services and are eventually passed on to customers through higher sales prices Payroll Liabilities -Unpaid salaries need to be paid out Employee Deductions -Employee
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