Log out Go to App
Go to App

Learning Materials

Features

Discover

Chapter 13: Question 5IFRS (page 715)

Distinguish between a current liability, such as accounts payable, and a provision.

Short Answer

Expert verified

Accounts payable is defined as the sum total of debts a company owes to its creditors for goods or services purchased on credit. Whereas a provision is defined as the amount that is kept aside out of profit earned for incurring anticipated expense or depreciation in the asset value, although the exact amount is yet to be ascertained.

Step by step solution

01

Definition of Current liabilities

Current liabilities are liabilities payable in an accounting year. These liabilities are created either out of realization from current assets or by the formation of new current liability.

02

Difference between provision and accounts payable

Accounts payable and provision can be differentiated on the following grounds:

  • Provision is regarded as an estimated liability that may take place in the future, whereas accounts payable is considered as an actual amount of liability that has already taken place in an accounting year but yet is to be paid off.
  • Provisions are recorded separately under the heading provision in the liabilities section of the balance sheet. Whereas accounts payable are recorded under the current head liabilities in the liabilities section of the balance sheet.
  • Examples for provision are proposed dividend, provision for depreciation, repairs and renewals, provisions for doubtful debts, and provident fund. On the other hand, examples for accounts payable include acquisition of raw materials, transportation expense, traveling expense, leasing, and licensing.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

BE13-5 (L01) Dillons Corporation made credit sales of \(30,000 which are subject to 6% sales tax. The corporation also made cash sales which totalled \)20,670 including the 6% sales tax. (a) Prepare the entry to record Dillons’ credit sales. (b) Prepare the entry to record Dillons’ cash sales.

Question: E13-1 (L01) (Balance Sheet Classification of Various Liabilities) How would each of the following items be reported on the balance sheet? (a) Accrued vacation pay. (j) Premium offers outstanding. (b) Estimated taxes payable. (k) Discount on notes payable. (c) Service warranties on appliance sales. (l) Personal injury claim pending. (d) Bank overdraft. (m) Current maturities of long-term debts to be paid (e) Employee payroll deductions unremitted. from current assets. (f) Unpaid bonus to officers. (n) Cash dividends declared but unpaid. (g) Deposit received from customer to guarantee (o) Dividends in arrears on preferred stock. performance of a contract. (p) Loans from officers. (h) Sales taxes payable. (i) Gift certificates sold to customers but not yet redeemed.

E13-5 (L01) (Adjusting Entry for Sales Tax) During the month of June, Rowling Boutique recorded cash sales of \(233,200 and credit sales of \)153,700, both of which include the 6% sales tax that must be remitted to the state by July 15.

Instructions

Prepare the adjusting entries that should be recorded to fairly present the June 30 financial statements.

CA13-2 (Current versus Noncurrent Classification) Rodriguez Corporation includes the following items in its liabilities at December 31, 2017.

l. Notes payable, \(25,000,000 due June 30, 2018.

2. Deposits from customers on equipment ordered by them from Rodriguez, \)6,250,000.

3. Salaries and wages payable, $3,750,000, due January 14, 2018.

Instructions

Indicate in what circumstances, if any, each of the three liabilities above would exclude from current liabilities.

How does unearned revenue arise? Why can it be classified properly as a current liability? Give several examples of business activities that result in unearned revenues.
See all solutions

Recommended explanations on Business Studies Textbooks

Intermediate Accounting

Read Explanation

Managers

Read Explanation

Operational Management

Read Explanation

Human Resources

Read Explanation

Strategic Direction

Read Explanation

Change Management

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free