Page 52 - eBook Audit Of Financial Statement Components

CHAPTER 5: AUDITING PROCEDURES ON

CURRENT LIABILITIES

A liability should be classified as a current liability when it:

i. is expected to be settled in the normal course of the

enterprise's operating cycle; or
ii. is due to be settled within twelve months of the

balance sheet date.

All other liabilities should be classified as non-current liabilities.

Current liabilities are liabilities or the obligations that a company

reasonably expects to liquidate either through the use of current

assets or the creation of other current liabilities. This concept
includes:

• Payables resulting from the acquisition of goods and

services: accounts payable, wages payable, taxes

payable, and so on.
• Collections received in advance for the delivery of goods

or performance of services, such as unearned rent

revenue or unearned subscriptions revenue.

• Other liabilities whose liquidation will take place within

the operating cycle, such as the portion of long-term

bonds to be paid in the current period or short-term
obligations arising from purchase of equipment.

Some current liabilities, such as trade payables and accruals for

employees and other operating costs, form part of the working
capital used in the normal operating cycle of the business.

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