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How does depreciation accounting help the firm manage equipment investment costs and taxes - Essay Example

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How does depreciation accounting help the firm manage equipment investment costs and taxes

” More so, the question which contains a series of sub-questions will be answered in the order in which these sub-questions have been asked. Current Liabilities usually form a sub-section of the Balance sheet. Typical Current Liabilities of known amounts may include accounts payable, short-term loans, outstanding salaries or other operating expenses that are still outstanding. Accounts payable refer to the amounts that ought to be paid to suppliers for merchandise bought from them in credit terms. Short-term loans are those types of loans that are usually repayable in a time period of less than a year. Outstanding expenses are those expenses that have already been incurred in the business in their day-to-day operations and which are yet to be met but have are already due. For an illustration of how Current Liabilities of known amounts are treated in the accounts, Accounts payable will be used. Whenever accounts payable increase in the business, the accounts payable ledger account is usually credited with the increase while the goods or stock account is debited with a similar amount. The journal entry is usually as illustrated; Dr Cr Amount Stock a/c xx Accounts payable xx Then, this Accounts payable amount has to be put under Current Liabilities sub-section in the Balance Sheet. The other Current Liabilities are also credited with an increase and debited with a decrease. (, 2011) Estimated Liabilities are those liabilities for which payee is known as well as payment date, but they remain uncertain as concerns their payment amounts. These payment amounts can be estimated with reasonability, though. Uncertainty in the amounts may come about due to the fact that the amounts to be paid are based upon a given event the will occur in future or an amount which determination is not yet. Estimated Current Liabilities maybe with the inclusion of; vacation, bonus, warranty liabilities and health benefits. Any estimated liability is usually recorded for expected commodities in future to be provided in that future period. Whenever payments are met that estimated liability is usually reduced and to reflect the same in the Balance Sheet the equivalent account of estimated Current Liability in question is debited and the double entry is also reflected in the equivalent account. When a payment of an estimated current liability is made the journal entry is as follows (using health benefits as an example): Dr Cr Amount Health Benefit xx Cash/ Check xx (, 2008) Contingent Liabilities are liabilities that are connected with uncertain events. To this, the explanation given in any typical business is that some events are likely to eventually lead to a liability; however, the timing of such an event as well as the amount is not possible at present. Such liabilities are thus, referred to as Contingent Liabilities. Examples of Current Liabilities befitting this description are Legal disputes which are ongoing and which may cause a contingent liability to the business, environmental pollution that may call for the business to cover the cost in future, or other liabilities like commodity warranties. However, it should be noted ...Show more


Running Head: CURRENT LIABILITIES Name: Tutor: Course: Date: University: The expression Current Liabilities describes those obligations that any given company has and that it expects to cover using the available Current Assets. These Current Liabilities can also be met by the creation of other Current Obligations with an annum or the business’ normal operating cycle depending upon which of them is longer…
Author : thompsonclark
How does depreciation accounting help the firm manage equipment investment costs and taxes
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