Financial Accounting and Reporting

Payable on Demand - breach of

Current Liability contract/covenants.
Liability - is a present obligation of an entity to GR: Current Liability
transfer an economic resource** as a result of past
 Grace Period happened between balance
event***.
sheet date and date of issuance of FS –
Liability must be Probable & Measurable Current Liability
*Obligation  Grace Period happened before the
 Legal - arises from contract & law balance sheet date – Non-current
Liability
 Constructive - we are not required but
expected from us Estimated Liabilities - obligations wherein the
amounts are not definite, and, in some cases, the
**Economic Resource
exact payees cannot be identified.
Render Services
 Premium
***Past Events - already incurred.
 Use in promotions (ex.
Presentation Coupons)
 Current - if its due to be settled within
the operating cycle or within 12 months.
Upon purchase of inventory
 Trade & Other Payable
Premium Inventory xx
 Notes payable to
Cash xx
suppliers.
Upon Redeem
 Accrued expenses
Cash xx
 Unearned revenue
Premium Expense xx
 Estimated Liabilities
Premium Inventory xx
 Warranties
Year-end entry for unredeemed/
 Premiums estimated liability
 Provisions & Contingencies Premium Expense xx
 Non-Current - residual definition.
Estimated Premium Liability xx
 Long Term Notes Payable  Customer Loyalty Program (ex.
 Leases points card)
 Income Tax Initial Sale:
 Pension Products → Record sale immediately
Refinancing - it is a replacement of all loan with Award → Record when redeemed.
a new loan. Record them in their stand-alone
GR in Loan: Current Liability if it's currently selling prices.
maturing.  Warranties - free repairs, replacements
 Refinancing happened between balance of parts.
sheet date and date of issuance of Upon sale:
FS. – Current Liability
Warranty Expense xx
 Refinancing happened before the balance Estimated Warranty Liability xx
sheet date - Non-Current Liability
Upon Incurring expense:
 Refinancing happened whether between
the balance sheet date and date of Estimated Warranty Liability xx
issuance OR before the balance sheet Cash xx
date if the entity has discretion to
refinance for at least 12 months - Non-
Current Liability Provision & Contingencies
*Discretion to Refinance - Control or Provision - these are existing liabilities with
ability to loan (credit line) anytime. uncertain timing or amount.
Financial Accounting and Reporting

Accounting treatment depends on:

Probable - more than 50% chance of loosing.
Expense /Loss xx
Liability xx
Possible - 50% of less, also known as contingent
liability.
No journal entry, only memo entry.
Remote - 10% or less, no journal entry no memo
entry.
Measurement:
 Best Estimate
 Expected Value/Mid-point (if there are
range of outcome)
Two Points of View in Contengies
 Liability - possible obligations or present
obligations but either probable or
measurable only not both.
 Asset - more conservative, If probable,
disclose only. If possible & remote, no
journal entry & no disclosure. liability: