WORKING PAPERS F/ FUND ACCOUNTING
WORKING PAPERS F/ FUND ACCOUNTING
22nd Edition
ISBN: 9781308868394
Author: Wild
Publisher: MCG CUSTOM
bartleby

Concept explainers

Question
Book Icon
Chapter 11, Problem 1DQ
To determine

Concept Introduction:

A liability can be defined as an obligation which a person or a company needs to pay which arises during the course of the business.

A liability can be short term or long term depending upon the time period in which it is required to be paid. If a liability is required to be paid with in a period of 12 months i.e. one year it will be treated as current liability and if a liability is required to be paid beyond a period of 12 months or one operating cycle, it will be treated as long term liability.

To determine:

Difference between a current and long-term liability

Expert Solution & Answer
Check Mark

Explanation of Solution

A liability can be defined as an obligation which a person or a company needs to pay which arises during the course of the business.

A current liability can be defined as the liability that is required to be paid within a period of 12 months or one operating cycle. Example accounts payable, short term notes payable.

While a long term liability can be defined as the liability that is required to be paid in a period of more than 12 months or one year or one operating cycle. Example – Bonds issued for 5 years, loan taken from bank to be paid in 3 years etc.

The difference between a current and long-term liability can be elaborated as under –

Basis Current Liability Long-term Liability
Time period It is required to be paid with a period of 12 months or one operating cycle of the balance sheet. It is required to be paid beyond a period of 12 months or one operating cycle of the balance sheet.
Examples Example are accounts payable, notes payable, wages and salaries, interest, dividends, short term loans etc. Examples are leases, bonds issued for more than one year, pension obligations, deferred taxes, bank loans etc.
Recording in the balance sheet Recorded in the balance according to the occurrence of their due dates in the current liability section. They are recorded in a separate section under the head long-term liabilities in the balance sheet.

Thus, it can be concluded that, the main difference between current and long term liability is that a current liability is required to be paid within a period of 12 months while, a long term liability is required to be paid beyond a period of 12 months.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Chapter 11 Solutions

WORKING PAPERS F/ FUND ACCOUNTING

Knowledge Booster
Background pattern image
Accounting
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Recommended textbooks for you
Text book image
FINANCIAL ACCOUNTING
Accounting
ISBN:9781259964947
Author:Libby
Publisher:MCG
Text book image
Accounting
Accounting
ISBN:9781337272094
Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:Cengage Learning,
Text book image
Accounting Information Systems
Accounting
ISBN:9781337619202
Author:Hall, James A.
Publisher:Cengage Learning,
Text book image
Horngren's Cost Accounting: A Managerial Emphasis...
Accounting
ISBN:9780134475585
Author:Srikant M. Datar, Madhav V. Rajan
Publisher:PEARSON
Text book image
Intermediate Accounting
Accounting
ISBN:9781259722660
Author:J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:McGraw-Hill Education
Text book image
Financial and Managerial Accounting
Accounting
ISBN:9781259726705
Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:McGraw-Hill Education