Concept explainers
Liabilities: Liabilities are debt and obligations of a business. These are the claims against the resources that a business owes to outsiders of the company. Liabilities may be Current liabilities, and Long-term liabilities. Examples: Creditors, Bills payable, Bank overdraft, Salaries and wages payable, and Notes payable.
To identify: The correct reporting place of estimated amounts of known liabilities.
Answer to Problem 1QC
Explanation of Solution
Explanation for correct answer: The estimated amounts of a transaction which is occurred in the past is called as known liabilities. Since they are liabilities, they must be reported on the balance sheet.
Explanation for incorrect answers:
- Option (a) is incorrect because known liabilities cannot be ignored, they should not be avoided.
- Option (c) is incorrect because on the income statement, only expenses and revenues should be reported, but not the liabilities.
- Option (d) is incorrect because notes to financial statements consist of additional data related to accounting methodologies of the income statement, balance sheet.
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Chapter 11 Solutions
Horngren's Financial & Managerial Accounting, The Managerial Chapters, Student Value Edition (5th Edition)
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