12

MANAGEMENT OF LIABILITIES

INTRODUCTION

It often has been said that the management, or planning and control, of the assets (excepting cash and temporary investments) of an enterprise rests largely in the hands of the operating executives but that management, or planning and control, of the liabilities and equity of the company is primarily the responsibility of the financial executives. In a certain sense this is true—up to a point—and the financial officers must exercise control over the liabilities of the entity to preserve its economic health.

The comments in this chapter relate to the practical or pragmatic considerations regarding liability planning and control, of which the controller must be intimately familiar. Remarks will relate to the traditional types of liabilities as well as new developments and concerns in this field of management.

LIABILITIES DEFINED

Although it is not the purpose of the chapter to deal at length with the accounting niceties regarding the recording of the liabilities of a company, the subject is defined for our purposes as:

Liabilities are the economic obligations of an enterprise that are recognized and measured in conformity with generally accepted accounting principles. Liabilities also include certain deferred credits that are not obligations (such as, for example, deferred credits from income tax allocations) but that are recognized and measured in conformity with generally accepted accounting principles.

Liabilities are measured at amounts ...

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