Classification of Liabilities

Current Liabilities
Liabilities that are required to be paid within a year from the end of the reporting period are classified as current liabilities. Current liabilities include accounts payable, notes payable due within a year, short-term borrowings, salaries payable, insurance payable, income taxes payable, unearned revenues and current maturities of long-term debt.

 

Noncurrent Liabilities
Noncurrent liabilities include notes payable due after a year, long-term borrowing and bonds payable. Notes payable due after a year are classified as noncurrent liabilities while notes payable due within a year are classified as current assets.

 

Review Questions
1. How are liabilities classified in a classified balance sheet?
Current liabilities and non-current liabilities
2. How is a current liability defined?
A current liability is a liability that is required to be paid within a year or normal operating cycle if the operating cycle is longer than a year.
3. What are the examples of current liabilities?
Accounts payable, notes payable due within a year, salaries payable, income taxes payable, short-term borrowings and current maturities of long-term borrowings
4. What are the examples of non-current liabilities?
Notes payable due after a year, long-term borrowings, bonds payable

 

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