Identify and define the five types of liabilities.

Question

What will be an ideal response?

Answer 1

ANSWER:
(1) Contractual liabilities are either expressly or implicitly contractual in the legal sense of the term. (2) A constructive obligation is one that is implied rather than expressly written. (3) With equitable obligations, a duty is not contractually present but may nevertheless exist due to ethical principles of fairness. (4) Contingent liabilities represent an existing situation involving uncertainty as to possible gain or loss to an enterprise that will ultimately be resolved when one or more future events will occur or fail to occur. A contingent liability is accrued if it is probable that a liability has occurred or an asset has been impaired, and it can be reliably measured. (5) Deferred credits continue to be part of the liability section in the balance sheet under present practices. One type of deferred credit represents prepaid revenues. The other type of deferred credit arises from income rules that defer income statement recognition of the item. These types of items impose no obligations on the firm to transfer assets in the future. They are simply past transactions being deferred from the income statement until future periods.