ACCOUNTING PROCEDURES

Accounting Procedures

Accounting Procedures

Introduction

Current liabilities are those obligations that are due within one year or the current operating cycle whichever is longer. Current liabilities are paid from current assets or the addition of other current liabilities.

The principal types of current liabilities are those known liabilities of a definite amount, those known liabilities dependent on the result of operations, and those known liabilities that are estimated (Trumbull, 2008).Current Liabilities of a Definite Amount Accounts Payable

Accounts payable is the recurring trade obligations of the company. Accounts payable are recorded when title passes. Shipping terms provide information when title passes. FOB shipping point title passes when the purchase leaves the supplier shipping dock. FOB destination title passes when the purchases arrives at the purchaser receiving dock. Careful attention must be exercised to document when products are received in order that the purchase and the asset are recorded in the correct period.Cash Overdraft

Current liabilities should not be reported as a reduction of an asset for example a bank overdraft. In order to have a bank overdraft the checks or other form of disbursement have to be mailed. If they are under the control of the company the disbursements must be reclassified to the appropriate liability account. A bank overdraft is a current liability. If the company has more than one bank account with the bank that has an overdraft the accounts can be combined and the total amount will determine if there is a bank overdraft (Sprague, 2004).Notes Payable

Short-term notes payable may be unsecured or secured by assets either unencumbered or encumbered or pledged. Notes that are secured should be reported separately with a note regarding the collateral in accordance with the full disclosure principle.Dividends Payable

Cash dividends payable or dividends payable with other assets are a current liability if management has the intention to pay them within twelve months or the end of the business operating cycle. The liability for cash dividends is recorded at the date of the declaration because the declaration is a contract (Murray, 2010).Accrued Liabilities

Accrued liabilities are the recording of costs and expenses that have been incurred but not paid for. The matching principle requires that these costs and expenses be reported in the period incurred. Accrued liabilities in accordance with the full disclosure principle are recorded by separate accounts including accrued salaries and wages, accrued interest payable and accrued taxes payable.Deferred Revenues

Deferred revenues are revenues collected in advance including interest income, rent income and certain advances for services to be performed. Deferred revenues can be deferred income on installment sales when the sale is not recognized in the current period (the recognition principle). An installment sale is characterized by a cash down payment, periodic payments over a long period of time and transfer of title that is conditional until the debt is received in full (Ijiri and Jaedicke, 2005).

Estimated Liabilities

Estimated liabilities are known liabilities that are uncertain in the amount at the time financial statements are prepared. Estimated liabilities should be reported as a current liability rather than by ...