Recording Liabilities: Current vs. Long-Term Considerations

Abstract

Question 1 Do you think that companies prefer to record liabilities as Current Liabilities or Long-Term Liabilities? Why? Liabilities refer to the debt a company owes another person or another company. When recording liabilities in a balance sheet, one should first crosscheck the type of liability and its source. Further, liability can be a current or long-term liability. Current liabilities refer to liabilities that should be paid within one year, while long-term liabilities refer to the liabilities that are payable in more than a year. Therefore, companies mostly record liabilities as either current, if they are due in one year, and long-term liabilities if they should be paid in more than a year. Question 2 Do you think that Loss Contingencies should be accrued and reported on the “face”of financial statements.? Yes, I concur that loss contingencies should be accrued when a loss is incurred and when the amount is estimable. Contingency is when a company is unsure whether a gain or loss may occur in the future. Therefore, one should select the best estimate of the loss by ensuring that it is within the range. Therefore, an organization should first determine the probability of an uncertain event occurring and then estimate the loss to be accrued. The probability of an event occurring should be 0.75 and above. Loss contingencies that t meet the criteria of probability and estimation should be reported in the balance sheet and on the footnotes. This allows for companies to comply with the accounting principles and disclosure obligations.