Chapter 10 Part 1 - Liabilities

What are current liabilities?

• Current liabilities are the obligations or debts that a company is expected to pay off within one month.

• Current liabilities are the obligations or debts that a company is expected to pay off within one year or within its normal operating cycle, whichever is longer.

• Current liabilities are the obligations or debts that a company is expected to pay off after five years.

• Current liabilities are the obligations or debts that a company is expected to pay off only if it generates a profit.

Give an example of a current liability.

• Accounts receivable

• Inventory

• Property, plant, and equipment

• Accounts payable

How are current liabilities different from long-term liabilities?

• Current liabilities are due within one month or the normal operating cycle, while long-term liabilities are due beyond one month or the normal operating cycle.

• Current liabilities are debts that are not expected to be paid off, while long-term liabilities are debts that are expected to be paid off.

• Current liabilities are obligations that are not legally binding, while long-term liabilities are legally binding obligations.

• Current liabilities are due within one year or the normal operating cycle, while long-term liabilities are due beyond one year or the normal operating cycle.

How is sales tax calculated?

• Sales tax is a fixed amount added to the purchase price of an item
• Sales tax is calculated based on the weight of the item being purchased
• Sales tax is calculated as a percentage of the purchase price of an item and varies depending on the state or country in which the purchase is made.
• Sales tax is only applicable to luxury items

What are long-term liabilities?

• Long-term liabilities are financial obligations that are due to be paid back over a period of less than one year.

• Long-term liabilities are financial obligations that are due to be paid back immediately.

• Long-term liabilities are financial obligations that are due to be paid back over a period of more than one year.

• Long-term liabilities are financial obligations that are not required to be paid back.

What is the main difference between notes payable and accounts payable?

• Notes payable are formal written agreements, while accounts payable are informal obligations.

• Notes payable are obligations that are not recorded on the balance sheet, while accounts payable are recorded as liabilities.

• Notes payable are informal obligations, while accounts payable are formal written agreements.

• Notes payable are obligations that are due within a short period of time, while accounts payable are obligations that are due within a long period of time.

Define notes payable.

• A type of asset that represents a written promise to receive a specific amount of money at a future date.

• A type of expense that represents a written promise to pay a specific amount of money at a future date.

• A type of revenue that represents a written promise to pay a specific amount of money at a future date.

• A liability that represents a written promise to pay a specific amount of money at a future date.

Define deferred revenue.

• Revenue that has been received but not yet recognized

• Revenue that has been earned but not yet recognized

• Revenue that has been recognized but not yet received

• The opposite of preferred revenue

Give an example of deferred revenue.

• Advance payment for a subscription service

• Payment for a one-time purchase

• Payment for a past due bill

• Payment for a gift card

What is the impact of deferred revenue on financial statements?

• Deferred revenue increases assets and liabilities

• Deferred revenue increases the asset and decreases the liability on the balance sheet.

• Deferred revenue decreases the liability and increases the equity on the balance sheet.

• Deferred revenue has no impact on the financial statements.