Concepts, Rules, and Examples

ARB 43, Chapter 3, contains several examples of current liabilities. It also contains broad general descriptions of the types of items to be shown as current liabilities. These obligations can be divided into those where

  1. Both the amount and the payee are known;

  2. The payee is known but the amount may have to be estimated;

  3. The payee is unknown and the amount may have to be estimated; and

  4. The liability has been incurred due to a loss contingency.

Examples of each of the foregoing types of current liabilities are discussed in the following sections.

Amount and Payee Known

Accounts payable arise primarily from the acquisition of materials and supplies to be used in the production of goods or in conjunction with the providing of services. APB 21 states that payables that arise from transactions with suppliers in the normal course of business and that are due in customary trade terms not to exceed one year may be stated at their face amount rather than at the present value of the required future cash flows.

Notes payable are more formalized obligations that may arise from the acquisition of materials and supplies used in operations or from the use of short‐term credit to purchase capital assets (APB 21 also applies to short‐term notes payable).

Dividends payable become a liability of the enterprise when the board of directors declares a cash dividend. Since declared dividends are usually paid within a short period of time after the declaration date, they are ...

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