Chapter 13 - Current Liabilities and Contingencies
Self-insurance is
not insurance, but risk assumption. There is little theoretical justification for the establishment of a liability based on a hypothetical charge to insurance expense.
Intention to refinance on a long-term basis means
that the company intends to refinance the short-term obligation so that it will not require the use of working capital during the ensuing fiscal year (or operating cycle, if longer).
To report a loss and a liability in the financial statements -
the cause for litigation must have occurred on or before the date of the financial statements
When only a part of a long-term debt is to be paid within the next 12 months, as in the case of serial bonds that it retires through a series of annual installments:
the company reports the maturing portion of long-term debt as a current liability, and the remaining portion as a long-term debt.
When a loss contingency exists -
the likelihood that the future event or events will confirm the incurrence of a liability can range from probable to remote.
Contingent liabilities depend on -
the occurrence of one or more future events to confirm either the amount payable, the payee, the date payable, or its existence. That is, these factors depend on a contingency.
Repayment of the short-term obligation required -
the use of existing current assets before the company obtained funds through long-term financing.
Companies should recognize the expense and related liability for compensated absences in -
the year earned by employees For example, if new employees receive rights to two weeks' paid vacation at the beginning of their second year of employment, a company considers the vacation pay to be earned during the first year of employment
Accumulated rights are :
those that employees can carry forward to future periods if not used in the period in which earned
Retailers must collect sales taxes from customers on -
transfers of tangible personal property and on certain services and then must remit these taxes to the proper governmental authority.
Income Tax Withholding:
Federal and some state income tax laws require employers to withhold from each employee's pay the applicable income tax due on those wages.
Use of the terms probable, reasonably possible, and remote to classify contingencies involves judgment and subjectivity -
Illustration 13-10 lists examples of loss contingencies and the general accounting treatment accorded them
Interest-Bearing Note Issued con't If Landscape prepares financial statements semiannually, it makes the following adjusting entry to recognize interest expense and interest payable at June 30:
Interest calculation = ($100,000 x 6% x 4/12) = $2,000 Dr. Interest Expense 2,000 Cr. Interest Payable 2,000
Illustration: Fluffy Cakemix Company offered its customers a large, nonbreakable mixing bowl in exchange for 25 cents and 10 boxtops. The mixing bowl costs Fluffy Cakemix Company 75 cents, and the company estimates that customers will redeem 60 percent of the boxtops. The premium offer began in June 2014 and resulted in the transactions journalized below. Fluffy Cakemix Company records purchase of 20,000 mixing bowls as follows:
Inventory of Premiums 15,000 Cash 15,000 ($20,000 x .75 = $15,000) Illustration: The entry to record sales of 300,000 boxes of cake mix would be: (300,000 x .80 = $240,000) Cash 240,000 Sales Revenue 240,000 Fluffy records the actual redemption of 60,000 boxtops, the receipt of 25 cents per 10 boxtops, and the delivery of the mixing bowls as follows: Cash [(60,000 ÷ 10) x $0.25] 1,500 Premium Expense 3,000 Inventory of Premiums 4,500 Computation: (60,000 ÷ 10) x $0.75 = $4,500
Illustration: On January 10, 2019, Wildcat contracts with Rig Reclaimers, Inc. to dismantle the platform at a contract price of $995,000. Wildcat makes the following journal entry to record settlement of the ARO: Part 4 ARO)
January 10, 2019 Asset Retirement Obligation 1,000,000 Gain on Settlement of ARO 5,000 Cash 995,000
Acid-Test Ratio (quick ratio):
Many analysts favor an acid-test or quick ratio that relates total current liabilities to cash, marketable securities, and receivables Acid-test ratio = Cash + Short-term investments + Net receivables / Current liabilities
Payroll Deductions:
Most common types of payroll deductions are taxes, insurance premiums, employee savings, and union dues
Accounts Payable arise because of -
Time lag between the receipt of services or acquisition of title to assets and the payment for them. Terms of the sale (e.g., 2/10, n/30 or 1/10, E.O.M.) usually state period of extended credit, commonly 30 to 60 days.
Companies must consider the following factors, in determining whether to record a liability with respect to pending or threatened litigation and actual or possible claims and assessments.
Time period in which the action occurred. Probability of an unfavorable outcome. Ability to make a reasonable estimate of the loss.
Recognition and Allocation of ARO:
To record an ARO in the financial statements, a company includes the cost associated with the ARO in the carrying amount of the related long-lived asset, and records a liability for the same amount. It records an asset retirement cost as part of the related asset because these costs are tied to operating the asset and are necessary to prepare the asset for its intended use. Companies should not record the capitalized asset retirement costs in a separate account because there is no future economic benefit that can be associated with these costs alone.
Illustration: Denson Machinery Company begins production on a new machine in July 2014, and sells 100 units at $5,000 each by its year-end, December 31, 2014. Each machine is under warranty for one year. Denson estimates that the warranty cost will average $200 per unit. Further, as a result of parts replacements and services rendered in compliance with machinery warranties, it incurs $4,000 in warranty costs in 2014 and $16,000 in 2015. 2. Recognition of warranty expense, July through December 2014:
Warranty Expense 4,000 Cash, Inventory, Accrued Payroll 4,000 Warranty Expense 16,000 Warranty Liability 16,000
Illustration: Denson Machinery Company begins production on a new machine in July 2014, and sells 100 units at $5,000 each by its year-end, December 31, 2014. Each machine is under warranty for one year. Denson estimates that the warranty cost will average $200 per unit. Further, as a result of parts replacements and services rendered in compliance with machinery warranties, it incurs $4,000 in warranty costs in 2014 and $16,000 in 2015. 3. Recognition of warranty costs incurred in 2015 (on 2014 sales):
Warranty Liability 16,000 Cash, Inventory, Accrued Payroll 16,000
To record a liability, a company does not need to know the exact payee nor the exact date payable...
What a company must know is whether it is probable that it incurred a liability.
Notes Payable:
Written promises to pay a certain sum of money on a specified future date. - Arise from purchases, financing, or other transactions. - Classified as short-term or long-term. - May be interest-bearing or zero-interest-bearing
Companies should accrue an estimated loss from a loss contingency by :
a charge to expense and a liability recorded only if both of the following conditions are met. 1. Information available prior to the issuance of the financial statements indicates that it is probable that a liability has been incurred at the date of the financial statements. 2. The amount of the loss can be reasonably estimated.
A liability incurred as a result of a loss contingency is by definition :
a contingent liability
Discount on Notes Payable is :
a contra account to Notes Payable, and therefore is subtracted from Notes Payable on the balance sheet.
Current assets -
are cash or other assets that companies reasonably expect to convert into cash, sell, or consume in operations within a single operating cycle or within a year.
Gain contingencies are:
claims or rights to receive assets (or have a liability reduced) whose existence is uncertain but which may become valid eventually - Gain contingencies are not recorded. - Disclosed only if probability of receipt is high.
Under the Accrual-Basis Method:
companies charge warranty costs to operating expense in the year of sale. 1. Method is the generally accepted method. 2. Referred to as the expense warranty approach
Cash-Basis Method:
companies expense warranty costs as incurred. In other words, a seller or manufacturer charges warranty costs to the period in which it complies with the warranty.
The current ratio is -
is the ratio of total current assets to total current liabilities. Current ratio = Current assets/Current liabilities
The seller of the warranty defers revenue because -
it has an obligation to perform services over the life of the contract. The seller should only defer and amortize costs that vary with and are directly related to the sale of the contracts (mainly commissions). It expenses those costs, such as employees' salaries, advertising, and general and administrative expenses, that it would have incurred even if it did not sell a contract.
Unemployment Taxes:
Provides a system of unemployment insurance.
Contingencies:
"An existing condition, situation, or set of circumstances involving uncertainty as to possible gain (gain contingency) or loss (loss contingency) to an enterprise that will ultimately be resolved when one or more future events occur or fail to occur."
The FASB, defined liabilities as:
"Probable Future Sacrifices of Economic Benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events."
Current liabilities are -
"obligations whose liquidation is reasonably expected to require use of existing resources properly classified as current assets, or the creation of other current liabilities."
Companies use two basic methods of accounting for warranty costs:
(1) the cash basis method and (2) the accrual method
The company demonstrates the ability to consummate the refinancing by:
(a) Actually refinancing the short-term obligation by issuing a long-term obligation or equity securities after the date of the balance sheet but before it is issued; or (b) Entering into a financing agreement that clearly permits the company to refinance the debt on a long-term basis on terms that are readily determinable
Illustration: Scorcese Inc. is involved in a lawsuit at December 31, 2014. (a) Prepare the December 31 entry assuming it is probable that Scorcese will be liable for $900,000 as a result of this suit. (b) Prepare the December 31 entry, if any, assuming it is not probable that Scorcese will be liable for any payment as a result of this suit.
(a) Lawsuit Loss 900,000 Lawsuit Liability 900,000 (b) No entry is necessary. The loss is not accrued because it is not probable that a liability has been incurred at 12/31/14.
Under IFRS, a provision is the same as:
(a) a contingent liability. (b) an estimated liability. = Correct (c) a contingent gain. (d) None of the above.
A typical provision is:
(a) bonds payable. (b) cash. (c) a warranty liability. = Correct (d) accounts payable.
In determining the amount of a provision, a company using IFRS should generally measure:
(a) using the midpoint of the range between the lowest possible loss and the highest possible loss. (b) using the minimum amount of the loss in the range. (c) using the best estimate of the amount of the loss expected to occur. = Correct (d) using the maximum amount of the loss in the range
Social Security Taxes (since January 1, 1937):
- Federal Old Age, Survivor, and Disability Insurance (OASDI) benefits for certain individuals and their families. - Funds from taxes levied on both employer and employee. - Current rate 6.2 percent based on the employee's gross pay up to a $110,100 annual limit. - OASDI tax is usually referred to as FICA. - In 1965, Congress passed the first federal health insurance program for the aged—popularly known as Medicare. - Alleviates the high cost of medical care for those over age 65. - Hospital Insurance tax, paid by both employee and employer at the rate of 1.45 percent on the employee's total compensation. - OASDI tax (FICA) and the federal Hospital Insurance Tax is referred to as the Social Security tax.
Federal Unemployment Tax Act (FUTA):
- Only employers pay the unemployment tax. - Rate is 6.2 percent on the first $7,000 of compensation paid to each employee during the calendar year. - If employer is subject to a state unemployment tax of 5.4 percent or more it receives a tax credit (not to exceed 5.4 percent) and pays only 0.8 percent tax to the federal government.
Current liabilities related to employee compensation may include:
- Payroll deductions. - Compensated absences. - Bonuses.
FASB uses three areas of probability:
- Probable. - Reasonably possible. - Remote.
Discount on notes payable:
- Represents the cost of borrowing. - Debited to interest expense over the life of the note. - Represents interest expense chargeable to future periods.
Presentation of Current Liabilities:
- Usually reported at their full maturity value. - Difference between present value and the maturity value is considered immaterial. - Companies may list the accounts in Order of maturity, Descending order of amount, or Order of liquidation preference.
If a company excludes a short-term obligation from current liabilities because of refinancing, it should include the following in the note to the financial statements:
1. A general description of the financing agreement. 2. The terms of any new obligation incurred or to be incurred. 3. The terms of any equity security issued or to be issued
Analysis of Current Liabilities - Two ratios to help assess liquidity are:
1. Current Ratio 2. Acid Test Ratio
A liability has three essential characteristics:
1. It is a present obligation that entails settlement by probable future transfer or use of cash, good or services 2. It is an unavoidable obligation 3. The transaction or other event creating the obligation has already ocurred
Common loss contingencies:
1. Litigation, claims, and assessments. 2. Guarantee and warranty costs. 3. Premiums and coupons. 4. Environmental liabilities.
A company is required to exclude a short term obligation from current liabilities if both of the following conditions are met:
1. Must intend to refinance the obligation on a long-term basis. 2. Must demonstrate an ability to refinance: - Actual refinancing. - Enter into a financing agreement.
Typical Gain Contingencies are:
1. Possible receipts of monies from gifts, donations, asset sales, and so on. 2. Possible refunds from the government in tax disputes. 3. Pending court cases with a probable favorable outcome. 4. Tax loss carryforwards (discussed in Chapter 19)
Exclude long-term debts maturing currently if they are to be:
1. Retired by assets accumulated that have not been shown as current assets, 2. Refinanced, or retired from the proceeds of a new debt issue, or 3. Converted into capital stock
If the contingency loss is either probable or estimable but not both, and if there is at least a reasonable possibility that a company may have incurred a liability, it must disclose the following in the notes:
1. The nature of the contingency. 2. An estimate of the possible loss or range of loss or a statement that an estimate cannot be made.
How to account for Unearned Revenue:
1. Upon receipt of the advance, debit Cash, and credit a current liability account identifying the source of the unearned revenue. 2. Upon earning the revenue, debit the unearned revenue account, and credit an earned revenue account
A company uses the cash-basis method when it does not accrue a warranty liability in the year of sale either because:
1. it is not probable that a liability has been incurred, or 2. it cannot reasonably estimate the amount of the liability.
Companies should disclose certain other contingent liabilities:
1.Guarantees of indebtedness of others. 2. Obligations of commercial banks under "stand-by letters of credit." 3. Guarantees to repurchase receivables (or any related property) that have been sold or assigned.
Measurement of ARO:
A company initially measures an ARO at fair value, which is defined as the amount that the company would pay in an active market to settle the ARO.
Environmental Liabilities - Accounting Recognition of Asset Retirement Obligations
A company must recognize an asset retirement obligation (ARO) when it has an existing legal obligation associated with the retirement of a long-lived asset and when it can reasonably estimate the amount of the liability. ARO's should be recorded as fair value.
Presentation of Contingencies:
A company records a loss contingency and a liability if the loss is both probable and estimable.
Sales Warranty Approach:
A warranty is sometimes sold separately from the product. The seller should recognize separately the sale of the product, with the manufacturer's warranty and the sale of the extended warranty. Companies defer revenue on the sale of the extended warranty and generally recognize it on a straight-line basis over the life of the contract
Zero-Interest-Bearing Note Issued :
A zero-interest-bearing note does not explicitly state an interest rate on the face of the note. Interest is still charged, however. At maturity the borrower must pay back an amount greater than the cash received at the issuance date. In other words, the borrower receives in cash the present value of the note. The present value equals the face value of the note at maturity minus the interest or discount charged by the lender for the term of the note. In essence, the bank takes its fee "up front" rather than on the date the note matures.
Typical Current Liabilities:
Accounts payable. Notes payable. Current maturities of long-term debt. Short-term obligations expected to be refinanced. Dividends payable Customer advances and deposits. Unearned revenues. Sales taxes payable. Income taxes payable. Employee-related liabilities
Dividends Payable:
Amount owed by a corporation to its stockholders as a result of board of directors' authorization. - Generally paid within three months. - Undeclared dividends on cumulative preferred stock not recognized as a liability. - Dividends payable in the form of additional shares of stock are reported in stockholders' equity.
Employee-Related Liabilities:
Amounts owed to employees for salaries or wages are reported as a current liability
Unearned Revenue: Illustration: Allstate University sells 10,000 season football tickets at $50 each for its five-game home schedule. Allstate University records the sales of season tickets as follows.
Aug. 6 Cash 500,000 Unearned Sales Revenue 500,000 (10,000 x $50 = $500,000) As each game is completed, Allstate makes the following entry. Dec. 31 Unearned Sales Revenue 100,000 Sales Revenue 100,000 ($500,000 ÷ 5 games = $100,000 per game)
Accounts Payable (trade accounts payable):
Balances owed to others for goods, supplies, or services purchased on open account.
Income Tax Payable:
Businesses must prepare an income tax return and compute the income tax payable. - Taxes payable are a current liability. - Corporations must make periodic tax payments. - Differences between taxable income (tax law) and accounting income (GAAP) sometimes occur (Chapter 19).
Sales Tax Payable Illustration: Prepare the entry to record sales taxes assuming there was a sale of $3,000 when a 4 percent sales tax is in effect.
Cash 3,120 Sales Revenue 3,000 Sales Taxes Payable ($3,000 x 4% = $120) 1,800 *Many companies do not segregate the sales tax and the amount of the sale at the time of sale. Instead, the company credits both amounts in total in the Sales Revenue account.
Illustration: Denson Machinery Company begins production on a new machine in July 2014, and sells 100 units at $5,000 each by its year-end, December 31, 2014. Each machine is under warranty for one year. Denson estimates that the warranty cost will average $200 per unit. Further, as a result of parts replacements and services rendered in compliance with machinery warranties, it incurs $4,000 in warranty costs in 2014 and $16,000 in 2015. 1. Sale of 100 machines at $5,000 each, July through December 2014:
Cash or Accounts Receivable 500,000 Sales Revenue 500,000
Premiums and Coupons:
Companies should charge the costs of premiums and coupons to expense in the period of the sale that benefits from the plan. - Company estimates the number of outstanding premium offers that customers will present for redemption. - Company charges the cost of premium offers to Premium Expense and credits Premium Liability.
Illustration: In addition, Wildcat must accrue interest expense each period. Wildcat records interest expense and the related increase in the asset retirement obligation on December 31, 2014, as follows: (Part 3 ARO)
December 31, 2014 Interest Expense ($620,092 x 10%) 62,092 Asset Retirement Obligation 62,092
Illustration: During the life of the asset, Wildcat allocates the asset retirement cost to expense. Using the straight-line method, Wildcat makes the following entries to record this expense: (Part 2 ARO)
December 31, 2014 through 2018 Depreciation Expense ($620,920 ÷ 5) 124,184 Accumulated Depreciation 124,184
Interest-Bearing Note Issued Illustration: Castle National Bank agrees to lend $100,000 on March 1, 2014, to Landscape Co. if Landscape signs a $100,000, 6 percent, four-month note. Landscape records the cash received on March 1 as follows:
Dr. Cash 100,000 Cr. Notes Payable 100,000
Zero-Interest-Bearing Note Issued Illustration: On March 1, Landscape issues a $102,000, four-month, zero-interest-bearing note to Castle National Bank. The present value of the note is $100,000. Landscape records this transaction as follows.
Dr. Cash 100,000 Dr. Discount on Notes Payable 2,000 Cr. Notes Payable 102,000
Interest-Bearing Note Issued con't (2) At maturity (July 1), Landscape records payment of the note and accrued interest as follows.
Dr. Notes payable 100,000 Dr. Interest Payable 2,000 Cr. Cash 102,000
Illustration: On January 1, 2014, Wildcat Oil Company erected an oil platform in the Gulf of Mexico. Wildcat is legally required to dismantle and remove the platform at the end of its useful life, estimated to be five years. Wildcat estimates that dismantling and removal will cost $1,000,000. Based on a 10 percent discount rate, the fair value of the asset retirement obligation is estimated to be $620,920 ($1,000,000 x .62092). Wildcat records this ARO as follows:
Drilling Platform 620,920 Asset Retirement Obligation 620,920
Environmental Liabilities - Accounting Recognition of Asset Retirement Obligations - Obligating Events:
Examples of existing legal obligations, which require recognition of a liability include, but are not limited to: - Decommissioning nuclear facilities; - Dismantling, restoring, and reclamation of oil and gas properties; - Certain closure, reclamation, and removal costs of mining facilities; - Closure and post-closure costs of landfills.
Illustration: (Accounts and Notes Payable) The following are selected 2014 transactions of Darby Corporation Oct. 1 - Issued a $50,000, 12-month, 8% note to Orion in payment of account
Oct. 1 Dr. Accounts Payable 50,000 Cr. Notes Payable 50,000 Interest calculation = ($50,000 x 8% x 3/12) = $1,000 Dec. 31 Dr. Interest Expense 1,000 Cr. Interest Payable 1,000
Illustration: (Accounts and Notes Payable) The following are selected 2014 transactions of Darby Corporation Oct. 1 - Borrowed $75,000 from the Shore Bank by signing a 12-month, zero-interest-bearing $81,000 note.
Oct. 1 Dr. Cash 75,000 Dr. Discount on Notes Payable 6,000 Cr. Notes Payable 81,000 Interest calculation = ($6,000 x 3/12) = $1,500 Dec. 31 Dr. Interest Expense 1,500 Cr. Discount on Notes Payable 1,500
Compensated Absences:
Paid absences for vacation, illness, and holidays Accrue a liability if all the following conditions exist. - The employer's obligation is attributable to employees' services already rendered. - The obligation relates to rights that vest or accumulate. - Payment of the compensation is probable. - The amount can be reasonably estimated.
Unearned Revenues:
Payment received before delivering goods or rendering services
Bonus Agreements:
Payments to certain or all employees in addition to their regular salaries or wages. - Bonuses paid are an operating expense. - Unpaid bonuses should be reported as a current liability.
Illustration: Assume a weekly payroll of $10,000 entirely subject to F.I.C.A. and Medicare (7.65%), federal (0.8%) and state (4%) unemployment taxes, with income tax withholding of $1,320 and union dues of $88 deducted. The company records the EMPLOYERS PAYROLL TAXES as follows:
Payroll Tax Expense 1,245 FICA Taxes Payable 765 FUTA Taxes Payable 80 SUTA Taxes Payable 400
Current Maturities of Long-Term Debt:
Portion of bonds, mortgage notes, and other long-term indebtedness that matures within the next fiscal year.
Illustration: Fluffy Cakemix Company offered its customers a large, nonbreakable mixing bowl in exchange for 25 cents and 10 boxtops. The mixing bowl costs Fluffy Cakemix Company 75 cents, and the company estimates that customers will redeem 60 percent of the boxtops. The premium offer began in June 2014 and resulted in the transactions journalized below. Illustration: Finally, Fluffy makes an end-of-period adjusting entry for estimated liability for outstanding premium offers (boxtops) as follows:
Premium Expense 6,000 Premium Liability 6,000 The December 31, 2012, balance sheet of Fluffy Cakemix Company reports an "Inventory of premiums" of $10,500 for the premium mixing bowls as a current asset and "Premium liability" of $6,000 as a current liability. The 2012 income statement reports a $9,000 "Premium expense" among the selling expenses.
Guarantee and Warranty Costs:
Promise made by a seller to a buyer to make good on a deficiency of quantity, quality, or performance in a product.
Illustration: Assume a weekly payroll of $10,000 entirely subject to F.I.C.A. and Medicare (7.65%), federal (0.8%) and state (4%) unemployment taxes, with income tax withholding of $1,320 and union dues of $88 deducted. The company records the salaries and wages paid and the EMPLOYEE PAYROLL DEDUCTIONS as follows:
Salaries and Wages Expense 10,000 Withholding Taxes Payable 1,320 FICA Taxes Payable 765 Union Dues Payable 88 Cash 7,827
Illustration: Palmer Inc. shows income for the year 2014 of $100,000. It will pay out bonuses of $10,700 in January 2015. Palmer makes an adjusting entry dated December 31, 2014, to record the bonuses as follows:
Salaries and Wages Expense 10,700 Salaries and Wages Payable 10,700 In 2015, Palmer records the payment of the bonus as follows: Salaries and Wages Payable 10,700 Cash 10,700
Illustration: Amutron Inc. employs 10 individuals and pays each $480 per week. Employees earned 20 unused vacation weeks in 2014. In 2015, the employees used the vacation weeks, but now they each earn $540 per week. Amutron accrues the accumulated vacation pay on December 31, 2014, as follows:
Salaries and Wages Expense 9,600 Salaries and Wages Payable ($480 x 20) 9,600 In 2015, it records the payment of vacation pay as follows: Salaries and Wages Payable 9,600 Salaries and Wages Expense 1,200 Cash ($540 x 20) 10,800
Illustration: (Accounts and Notes Payable) The following are selected 2014 transactions of Darby Corporation. Sept. 1 - Purchased inventory from Orion Company on account for $50,000. Darby records purchases gross and uses a periodic inventory system.
Sept. 1 Dr. Purchases 50,000 Cr. Accounts Payable 50,000
Payroll Deductions - Unemployment Taxes -
State unemployment compensation laws differ both from the federal law and among various states. Employers must refer to the unemployment tax laws in each state in which they pay wages and salaries.
Sales Tax Payable Illustration: Assume the Sales Revenue account balance of $150,000 includes sales taxes of 4 percent. Prepare the entry to record the amount due the taxing unit.
Tax calculation = ($150,000 ÷ 1.04 = $144,230.77 - $150,000 = $5,769.23) Sales Revenue 5,769.23 Sales Taxes Payable 5,769.23
Reasonably possible.:
The chance of the future event or events occurring is more than remote but less than likely
Remote:
The chance of the future event or events occurring is slight.
Probable:
The future event or events are likely to occur.
Short-term obligations are:
debts scheduled to mature within one year after the date of a company's balance sheet or within its operating cycle, whichever is longer
A company should classify as current any liability that is:
due on demand (callable by the creditor) or will be due on demand within a year (or operating cycle, if longer).
Operating cycle:
period of time elapsing between the acquisition of goods and services and the final cash realization resulting from sales and subsequent collections.
Customer Advances and Deposits (Returnable cash deposits)
received from customers and employees. - To guarantee performance of a contract or service or - As guarantees to cover payment of expected future obligations. - May be classified as current or long-term liabilities.
The Sales Taxes Payable account should:
reflect the liability for sales taxes due various governments
Vested rights exist:
when an employer has an obligation to make payment to an employee even after terminating his or her employment. Thus, vested rights are not contingent on an employee's future service.