Initially, the resources (assets) of a business have to come from an entity outside of the particular organization. Two main sources of resources are creditor sources (liabilities) and owner's sources (owner's equity). In this chapter, we begin our in-depth discussion of liabilities.
Due to the nature of some business activities, an entity will commonly receive goods and services and not pay for them until days or weeks later. Therefore, at a specific point in time, such as a balance sheet date, we may find that a business has obligations for merchandise received from suppliers (accounts payable), for money it has borrowed (notes payable), for interest incurred (interest payable), for sales tax charged to customers which has not yet been remitted to the government (sales taxes payable), for salaries and wages (salaries and wages payable), and for amounts due to government agencies in connection with employee compensation (Federal Income Tax Withholdings Payable, FICA Taxes Payable, Federal Unemployment Taxes Payable, and State Unemployment Taxes Payable). Such payables are reported as current (short-term) liabilities because they will fall due within the next 12 months and will require the use of current assets (cash, in most cases) to liquidate them. Accounting for current liabilities is discussed in this chapter.