Lecture 8: Liabilities - Vocabulary Flashcards

This set of vocabulary flashcards covers the definitions and concepts related to liabilities, including specific types such as provisions, contingent liabilities, and various financing instruments.

Liability

A present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits as per AASB 137 (10).

Constructive Obligation

An obligation that arises from normal business practice, customs, and a desire to maintain good business relations, creating a valid expectation that the entity will discharge its responsibilities.

Payroll Liabilities

Amounts deducted by employers from wages and salaries (such as PAYG, Superannuation, and HECS) that represent liabilities until they are remitted to the appropriate parties.

PAYG

Pay-as-you-go withheld tax, which is a deduction from employee salaries that the employer must record as a liability until it is paid to the Taxation Office.

Revenue Received in Advance

Also known as unearned revenue, this occurs when customers pay ahead of time for goods or services, such as plane tickets or magazine subscriptions, creating a liability until the performance obligation is met.

Breakage

The unused value of a gift card that is recognised as revenue when the obligation to provide goods or services ceases, often by passively waiting for expiry as per AASB 15.

Notes Payable

Obligations in the form of a written agreement (securities) where the borrower is required to pay interest or borrowing costs and repay the principal amount.

Bank Bills

A short-term cash financing instrument with less formality than a loan where interest is typically prepaid through discounting.

Face Value

The amount of a bank bill or note that must be repaid at the maturity date.

Discounted Bank Bill

A financing arrangement where the cash received today is less than the face value to be paid at maturity; the difference represents the interest expense.

Mortgage

A loan secured by a charge over property, allowing the lender to sell the property to recover the debt if the borrower is unable to repay.

Principal and Interest (PI) Mortgage

A type of mortgage where the periodic payments consist of both interest expense and a reduction of the loan liability principal.

Interest-Only (IO) Mortgage

A type of mortgage where the payments consist only of the interest on the loan, without reducing the principal amount.

Provision

A liability of uncertain timing or amount that must be recognised when there is a present obligation, a probable outflow of resources, and a reliable estimate can be made.

Accruals

Liabilities such as interest payable or accrued wages that are distinguished from provisions by having less uncertainty regarding their timing or amount.

Warranty

An obligation of a supplier to a purchaser that a product will be functional; recorded as a provision due to significant uncertainty in the timing and cost of satisfying future claims.

Restructuring

A program planned and controlled by management that materially changes either the scope of the business or the manner in which it is conducted.

Contingent Liability

Possible obligations for which the amount of future sacrifice is so uncertain that they cannot be measured reliably; they are disclosed in the notes to the financial statements rather than recognised in the accounts.