Definition
The term accrued liabilities refers to unpaid expenses resulting from contractual agreements with another party. Accrued liabilities appear as a current liability on a company's balance sheet, and include items such as income taxes, the company's share of payroll taxes, property taxes, and compensated absences.
Explanation
Current liabilities are defined as debts that must be paid within one year or one operating cycle, whichever is longer. Accrued liabilities are also part of the company's definitely determinable liabilities, since they are both known to exist and can be measured precisely.
Generally, accrued liabilities fall into one of the following subcategories:
Payroll Taxes: the money collected from an employee via a payroll deduction is considered collections for third parties. However, the company's share of payroll taxes is considered an accrued liability until paid by the company to the state or federal agency. Examples of payroll taxes include FICA and state-level unemployment tax.
Property Taxes: local governments generally collect property taxes on a quarterly basis. The accounting convention is to accrue one-third of the quarterly taxes owed each month.
Compensated Absences: if the obligation can be reasonably estimated, payment is probable, and the benefit is vested (or accumulates over time), the company is required to accrue a compensated absence such as vacation, illness, and holiday pay.
Example
Company A's headquarters is located in New York City. Company A's property taxes for this location are $180,000 per year, or $15,000 per month, payable in the months of March, June, September, and December. In the month of February, Company A would accrue this liability in the following manner:
Debit | Credit | |
Property Tax Expense | $15,000 | |
Property Taxes Payable | $15,000 |
In the month of March, Company A needs to remit their quarterly property taxes to the City of New York. The journal entries to account for this transaction are as follows:
Debit | Credit | |
Property Tax Expense | $15,000 | |
Property Taxes Payable | $30,000 | |
Cash | $45,000 |
Related Terms
The financial accounting term current liabilities are generally defined as any debts that must be paid within one year or one operating cycle, whichever is longer. Current liabilities are a subcategory of liabilities, which appear on a company's balance sheet.
Moneyzine EditorNovember 6th, 2024
The financial accounting term determinable current liabilities refers to near-term debt obligations that can be precisely measured. To qualify as a determinable current liability, the debt obligation is reasonably expected to come due in a single operating cycle or one year. There must also be certainty about the existence of the obligation, as well as the amount owed.Moneyzine EditorNovember 6th, 2024
The term liabilities from advance collections refers to money collected from others that is returnable or redeemable for goods or services. Liabilities from advance collections appear as a current liability on a company's balance sheet and include refundable deposits, advances received from customers, gift cards, and collections for third-parties.Moneyzine EditorJanuary 23rd, 2024
The term advances from customers refers to money collected by a company prior to providing a product or service. Advances from customers are oftentimes collected when businesses sell prepaid subscriptions or gift certificates.Moneyzine EditorJanuary 4th, 2024
The term collections for third parties refers to money collected from customers on behalf of another entity. The most common examples include sales and payroll taxes. When a company collects this money, the intention is to eventually transfer it to the third party. Following the receipt of this cash, the company would classify the collections as a current liability on the balance sheet.Moneyzine EditorJanuary 11th, 2024- The term refundable deposits refers to cash collected from credit customers that a company expects to return after a specified period of time, or when certain conditions are satisfied. When companies collect this money, the intention is to return it after a relatively brief period of time. Following the receipt of the cash, the company would classify the refundable deposit as a current liability on the balance sheet.Moneyzine EditorSeptember 21st, 2023
The term accrual bond refers to a security that does not make periodic interest payments to the bondholder. As interest accrues, it is added to the principal of the bond and paid to the investor when the security matures.Moneyzine EditorNovember 6th, 2024
