Crash Course in Accounting and Financial Statement Analysis, Second Edition

Accounts Payable

Accounts payable is a current liability representing amounts owed by the company to suppliers for prior purchases or services.

Suppose you purchased $7 of your lemons from a fruit supplier on credit, promising to pay him back in a month. Here is the impact on the financial statements:

	Debit	Credit
Inventories (A)	$7
Accounts payable (L)		$7

Source: Used with permission. Microsoft 2005 Annual Report.

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Other Typical Current Liabilities

Accrued compensation is wages owed to employees (Exhibit 6.13). Income taxes are taxes owed to the IRS. Unearned revenues are revenues received for services not yet provided by the company. Examples include revenue from magazine subscriptions, gift certificates, airline tickets, hotel rental, other current liabilities, which is a catch-all category that may include:

• Dividends payable

• Warranty costs

• Litigation costs

Exhibit 6.13. Other Current Liabilities Include a Number of Obligations Due Within One Year

Source: Used with permission. Microsoft 2005 Annual Report.

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