ACC102 Chapter 1: LIABILITIES
Document Summary
Liabilities are present obligations of an entity to transfer an economic resource as a result of past events. Three aspects of an accounting liability: present obligation. Obligation is a duty or responsibility that an entity has no practical ability to avoid. Legal obligation legally forceable as a consequence of binding contract or statutory requirement. Constructive obligation rise to a liabilities by reason of normal business practice, custom, and a desire to maintain good business relations or ac in an equitable manner: transfer of an economic resource. Very heart of the definition of an accounting liability. The asset that represents a right with potential to produce economic benefits. Obligation must pay cash, transfer noncash asset, or provide service at some future time. The issuance of entity"s own shares is not a transfer of noncash asset because the share capital is an equity item: past event. Liability is not recognized until it is incurred.