Accounting for liabilities and equity

 Complete three accounting exercises related to liabilities and equity using a provided worksheet.

Introduction

Information about liabilities is most useful when the balance sheet identifies them as either current or long-term. Managers need to know when obligations are due so they can plan for them and take appropriate action. This is the essence of classifying liabilities.

Current Liabilities

All liabilities for an organization reported in the financial statements exhibit three distinct characteristics: (1) definition, (2) classification, and (3) uncertainty. No liability can be reported when one or more of these characteristics is missing. As an example of liability definition, most organizations expect to pay salaries or wages to their employees in the months and years to come; however, these future payments are not liabilities because no past event, such as employee work, resulted in a present obligation.

Uncertainty in liabilities involves addressing three important questions: (1) Whom to pay? (2) When to pay? (3) How much to pay? The answers to these questions helps accounting employees make the correct entries, post to the correct customer accounts, and reconcile liability amounts to the financial statements.

Long-Term Liability and Corporate Stock

Organizational projects that require large amounts of money often are funded from the issuance of bonds or corporate stock. Some examples of organizations that use this form of financing include for-profit and non-profit companies, government units, water authorities, and school districts. In return for financing these large projects, bonds promise to repay the lender with interest. Purchasers of corporate stock do so with the expectation of dividend earnings and stock value appreciation.

Overview

This assessment consists of three accounting exercises. The exercises are provided in the Accounting for Liabilities and Equity Worksheet. Use this worksheet to record and submit your solutions for Exercises 4-1, 4-2, and 4-3.

Preparation

In addition, practice problems for each exercise are provided in the Assessment 4 Practice Problems Worksheet. The worksheet and answer key can be found in the Capella Resources activity of this assessment and are optional.

The following resource is required to complete the assessment.

CAPELLA RESOURCES

Click the link provided to view the following resource:

Submission Guidelines

Submit your Accounting for Liabilities and Equity Worksheet for faculty evaluation. Please do not submit completed practice problems with your assessment.