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

Under current accounting standards, the lease liability account should be disclosed as:

A footnote disclosure only, not recognized on the balance sheet

A separate line item, split between current and non-current liabilities

A component of shareholders' equity

An asset on the balance sheet

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Verified step by step guidance

Understand the concept of lease liability: Lease liability represents the obligation of the lessee to make lease payments over the lease term, as per the lease agreement. It arises under the accounting standards for leases, such as IFRS 16 or ASC 842.

Review the accounting treatment for lease liabilities: Under current accounting standards, lease liabilities are recognized on the balance sheet. They are not merely disclosed in footnotes or treated as part of shareholders' equity.

Determine the classification of lease liabilities: Lease liabilities are split into two categories on the balance sheet: current liabilities (due within one year) and non-current liabilities (due after one year). This classification helps users of financial statements understand the timing of the lessee's obligations.

Understand why lease liabilities are not assets: Lease liabilities represent obligations, not resources owned by the entity. Therefore, they are classified as liabilities rather than assets on the balance sheet.

Conclude the correct disclosure: Lease liabilities are presented as a separate line item on the balance sheet, divided into current and non-current portions, in accordance with accounting standards.