Accrued Liabilities

1. Define and record “accrued liabilities.”

2. Report the sale and redemption of gift cards.

3. Account for gift cards that are not expected to be redeemed.

Question: Current liabilities often include rent payable, salary payable, insurance payable, and the like. These

debts are incurred in connection with day-to-day operations. The amounts are known and payment will be made

within a relatively short period of time.

Liabilities that result from physical events such as the purchase of inventory or supplies are often reported as

accounts payable. Other current debts (interest payable or rent payable, for example) are sometimes combined

under the general title of accrued liabilities because they grow gradually over time rather than through a specific

transaction. How does an organization determine the amount of current liabilities to be reported on its balance

sheet?

Answer: As discussed in a previous chapter, the timing for the recognition of a purchase is guided by the FOB

point specified by the seller or negotiated by the parties. If marked “FOB shipping point,” the liability is reported

by the buyer when the goods leave the seller’s place of business. “FOB destination” delays recordation until the

merchandise is received by the buyer. Unless goods are damaged during transit or a dispute arises over payment

for transportation charges, the FOB point is only relevant around the end of a company’s fiscal year as the

accountant attempts to classify transactions between one period and the next.

Many other liabilities are not created by a specific event but rather grow gradually day by day. Interest and rent

are common examples but salaries, insurance, payroll taxes, and utilities also accrue in the same manner. They

increase based on the passage of time. Interest on a loan or the amount due to an employee gets larger on a

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