ACC 300 Lecture 05: Reporting Liabilities and Results of Operations

Vocabulary practice flashcards defining key accounting concepts, liability rules, revenue criteria, and income statement structures from ACC 300 Lecture 05.

Liability

A present obligation arising from a past transaction that involves a probable future sacrifice of economic benefits through the transfer of assets or services.

Liability Recognition Criteria

The four required conditions to record a liability on the balance sheet: (1) present obligation, (2) past transaction, (3) probable future resource sacrifice, and (4) relevant measurement basis.

Contingent Liability

A possible obligation with an uncertain outcome that does not meet the balance-sheet recognition criteria and may only be disclosed in the notes.

Current Liability

An obligation that is due to be settled within 12 months.

Non-Current Liability

An obligation whose settlement is expected beyond one year.

Current Non-Financial Liability

An obligation to deliver goods or services (such as customer advances), measured by the amount ultimately recognized as revenue.

Current Financial Liability

A financial obligation measured by the amount needed to discharge the obligation.

Warranty Liability

An obligation originating at product sale for estimated future repairs, split into current and non-current portions according to expected timing.

Executory Contract

An exchange of promises representing no recognized present obligation, resulting in no balance-sheet liability (such as a future cattle sale agreement).

Advances from Customers

A liability recorded upon receiving cash prior to delivering goods or performing services, deferring revenue until performance is completed.

Revenue Recognition Conditions

The two lecture criteria required to record revenue: earned (goods or services delivered) and realized or realizable (cash or collectible asset received).

Strict Realization Principle (HGB)

An accounting distinction under HGB where revenue is recognized only if it is realized at the balance-sheet date, such as completed multi-year construction.

Matching Principle

The accounting concept requiring the cost of consumed resources to be recognized in the period of the related revenue, independent of the payment date.

Product Costs

Costs consisting of direct materials, direct labor, and manufacturing overhead that are initially capitalized as Inventory and expensed as COGS upon sale.

Period Expenses

Costs not directly attributable to specific product sales (such as SG&A, marketing, administrative salaries, R&D, and IT) that are expensed as incurred or consumed.

Function of Expense Method

An income statement format (Cost of Sales method) grouping expenses by business function (COGS, selling, administrative, other), used by SEC-listed public U.S. companies.

Nature of Expense Method

An income statement format (Total Cost method) grouping expenses by input type (materials, wages, rent, depreciation, transportation), permitted under IFRS and HGB.

EBIT

Earnings Before Interest and Taxes; an indicator of operating profitability.

EBITDA

Earnings Before Interest, Taxes, Depreciation and Amortization.

Non-Operating Items

Income statement items distinguished from ordinary operations, including interest income/expense, investment gains/losses, and disposal gains/losses.

Recognized Provision

A liability reflected on the balance sheet when there is a present obligation, a probable outflow, and a measurable amount, even under high estimation uncertainty.