Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

9. Current Liabilities

Types of Liabilities

Financial Accounting

9. Current Liabilities

Types of Liabilities

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Multiple Choice

Which of the following is the proper balance sheet classification for contingent events?

They are generally disclosed in the notes to the financial statements, not classified as liabilities on the balance sheet.

They are classified as equity.

They are always classified as current liabilities.

They are always classified as long-term liabilities.

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Verified step by step guidance

Understand the concept of contingent events: Contingent events are potential liabilities that depend on the outcome of a future event. They are not guaranteed liabilities but rather possible obligations.

Review the accounting treatment for contingent liabilities: According to accounting standards (e.g., GAAP or IFRS), contingent liabilities are generally disclosed in the notes to the financial statements if the likelihood of occurrence is reasonably possible or probable but cannot be reliably measured.

Clarify why contingent liabilities are not classified as liabilities on the balance sheet: Since contingent liabilities depend on uncertain future events, they do not meet the criteria for recognition as liabilities (current or long-term) on the balance sheet until the obligation becomes certain.

Understand why contingent liabilities are not classified as equity: Equity represents ownership interest in the company, and contingent liabilities do not relate to ownership but rather to potential obligations.

Conclude that contingent liabilities are disclosed in the notes to the financial statements: This ensures transparency for users of financial statements while adhering to accounting principles that require recognition only when obligations are certain and measurable.