Simple vs Compound Interest

Interest is payment for the use of money for a specified period of time, Interest can be calculated on either a simple or a compound basis. The distinction between the two is important because it affects the amount of interest earned or incurred. Simple Interest Simple interest means that the interest payment is computed on … Read more

Notes Payable

What Is Notes Payable? – Definition Notes payable is a liability that results from purchases of goods and services or loans. Usually, a written instrument that includes interest. It is a form of Long-term Debt. Explanation A firm may issue along-term note payable for a variety of reasons. For example, notes may be issued to … Read more

Contingent Liabilities

What Are Contingent Liabilities? – Definition Contingent liabilities are possible liabilities that may or may not occur, depending on some future events. Or, Contingent liabilities are potential future liabilities whose existence is contingent upon some future event. Explanation In effect, a contingent liability is the result of an existing condition or situation whose final resolution … Read more

Current Liabilities

Current Liabilities – Definition Current liabilities are those liabilities that will either be paid or require the use of current assets within a year (or within the operating cycle, if longer), or that result in the creation of new current liabilities. Current vs Long-term Liabilities In preparing a balance sheet, liabilities are classified as either … Read more


What Are Liabilities? – Definition Liabilities are probable, non-ownership claims against the firm which must arise from events that occurred in the past and be expected to be satisfied in the future. Liabilities can be held by owners if they originate through transactions in which the owners acted in the capacity of nonowners. For example, … Read more

Measuring and Recording Liabilities

Liabilities are generally recorded and disclosed at the present value of the future payments computed using a realistic interest rate. The existence of a nominal interest rate that is unrealistic makes the measurement task more difficult. The effect of complying with the rule is the description of the proper relationship between the amount actually borrowed … Read more