LO1 – Identify and explain the difference between current and non-current liabilities.
A current or short-term liability is a form of debt that is expected to be paid within the longer of one year of the balance sheet date or one operating cycle. A non-current liability is a form of debt that is expected to be paid beyond one year of the balance sheet date or the next operating cycle, whichever is longer. Current and non-current liabilities must be shown separately on the balance sheet.
LO2 – Record and disclose known current liabilities.
Known current liabilities are those where the payee, amount, and timing of payment are well-established and documented. Accounts payable and payroll liabilities are types of known current liabilities. Employers are responsible for withholding from employees amounts including Employment Insurance (EI), Canada Pension Plan (CPP), and income taxes, and then remitting the amounts to the appropriate authority. Sales tax like the Goods and Services Tax (GST) in Canada must be remitted to the government on a regular basis, often monthly or quarterly. Current notes payable may require interest to be accrued.
LO3 – Record and disclose estimated current liabilities.
An estimated liability occurs when amounts owing can be reasonably estimated, but the invoice has not yet been received at the date financial statements are issued, for example. Professional fees incurred to prepare year-end financial statements are an example. An estimated liability can also arise based on past experience of claims against the company. Warranty liabilities are an example. A contingent liability exists when it is possible but not probable that a debt will arise as a result of a past occurrence, or the event is probable but the amount cannot be reliably estimated. A contingent liability is disclosed in the notes to the financial statements. Events with a remote likelihood of occurrence are not disclosed or recorded.
LO4 – Explain, calculate, and record non-current debt.
A loan is a form of long-term debt that can be used by a corporation to finance its operations. Long-term loans can be secured and are typically obtained from a bank. Loans are often repaid over many years in equal blended payments containing both interest and principal. Finance leases are like loans in that they are generally repaid in equal blended payments over a number of years. However, payments are made to a leasing company (the lessor) for the right to use a long-lived asset owned by the leasing company. Unlike loans and finance leases, bonds pay only interest at regular intervals to bondholders. The original investment is repaid to bondholders when the bond matures (or comes due), usually after a number of years.
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