Week 11- ACCT1101

• Liabilities Definition: Liabilities are obligations or debts that a company owes to external parties. These obligations arise from past transactions or events, and they require future settlement, usually by transferring assets or providing services.
• Recognition of Liabilities: Liabilities are recognized in the financial statements when:

  • There is a present obligation as a result of past events,
  • Settlement of the obligation is probable, and
  • The amount of the obligation can be reliably measured.
• • Provisions are liabilities of uncertain timing or amount. They are recognized when there is a present obligation arising from past events, it is probable that an outflow of resources will be required to settle the obligation, and the amount can be reliably estimated.
• • Contingent liabilities are potential obligations that arise from past events, but their existence depends on uncertain future events. They are disclosed in the financial statements if the possibility of an outflow of resources is remote, but if it's probable, they are recognized as liabilities.
• Liabilities are classified as current or non-current based on their expected settlement timeframe:

  • Current liabilities are expected to be settled within the entity's operating cycle or within one year, whichever is longer.
  • Non-current liabilities are obligations not expected to be settled within the entity's operating cycle or within one year.
• Major Categories of Current Liabilities:

  • Accounts payable
  • Short-term borrowings
  • Accrued expenses
  • Taxes payable
  • Dividends payable

  These are typically recorded at their nominal or face value.
• Major Categories of Non-Current Liabilities:

  • Long-term borrowings
  • Bonds payable
  • Lease liabilities
  • Deferred tax liabilities
  • These are recorded at present value, taking into account the time value of money.
• Analysis of Liabilities for Decision-Making: Analysis of liabilities involves assessing their impact on the financial health, liquidity, and solvency of the company. It helps stakeholders make informed decisions about investing, lending, or operating with the company.
• Reporting Requirements under Corporations Act 2001 and Accounting Standards: The Corporations Act 2001 and accounting standards set out the guidelines for financial reporting, ensuring transparency, comparability, and reliability of financial information.
• External Reporting Requirements: Financial statements include:

  • Statement of Profit or Loss and Other Comprehensive Income
  • Statement of Financial Position
  • Statement of Changes in Equity
• Preparation of Financial Statements: Financial statements must adhere to the relevant accounting standards, providing a true and fair view of the company's financial position, performance, and cash flows.