What are the criteria for classifying an item as a current liability? What are some examples of current liabilities? Why is it important to classify a portion of long-term debt on a yearly basis as a current liability? What is the implication of misclassifying a liability as current or long-term? Generally accepted accounting principles (GAAP) require loss contingencies to be accrued in the period the contingency becomes known

What are the criteria for classifying an item as a current liability?
A liability is something which a firm owes to a person or another firm. It may be in the form of creditors - people or firms who have sold you goods which you have not yet paid for, or it may be money borrowed from a financial institution - loans or overdrafts. In order for the liability to be classified as current liabilities, such obligations should include obligations that are due on demand or that will become due on demand within one year from the balance sheet date.

What are some examples of current liabilities?
Current Liabilities is the money owed by a business that must be paid within one year such as Accounts Payable, Notes Payable, Dividend Payable, Income Taxes Payable, and Loan Principal and Loan Interest that is due within one year. Non-current liabilities are those obligations that will not become due and payable in the coming year. There are three types of non-current liabilities, only two of which are listed on the balance sheet: Non-current Portion of Long Term Debt (LTD), Subordinated Officer Loans (Sub-Off), Contingent Liabilities

Why is it important to classify a portion of long-term debt on a yearly basis as a current liability?
Current liabilities are usually amount owed for operating expenses, dominated by accounts payable. However in many cases, current liabilities also include Current Portion of Long Term Debt, which is the amount of long-term debt due for payment in less than 12 months. It is important to classify a portion of long-term debt on a yearly basis as a current liability because it will tell to the shareholders and external parties about the company's obligation, which needs to be repaid within 12 months.

What is the implication of misclassifying a liability as current or long-term?
Managing current liabilities is very important to a company's cash flow process and extended viability. Failure to appropriately manage current liabilities will result in working capital issues, which could lead to operating failures. Therefore, the reclassifying of the liability should be made immediately if found misclassify.

Generally accepted accounting principles (GAAP) require loss contingencies to be accrued in the period the contingency becomes known. However, GAAP specifically disallows booking gain contingencies until the gain is realized. Do you agree or disagree? Why?

A contingency is "an existing condition, situation, or set of circumstances involving uncertainty as to possible gain (gain contingency) or loss (loss contingency) to an enterprise that will ultimately be resolved when one or more future events occur or fail to occur."

In many cases, the precise amount of a contingent liability, if any, also may not be known. If a company is relatively certain that a contingent liability exists and the amount can be reasonably estimated, the contingent liability should be recorded in the financial statements. However, GAAP specifically disallows booking gain contingencies until the gain is realized. I agree with such requirements because though there are some situations that the company is sure that the possible gain will become valid eventually, there is still some risk that it would turn the other way around. In addition, it could also mislead the shareholders and investors about the company's financial situation, which lead to wrong investment decision.