Payables and accrued liabilities

Area 2: Select Balance Sheet Accounts (30-40%)

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Topics

Accounts payable and accrued liabilities
Asset retirement obligations
Exit and disposal activities

Lessons

Payables and Accrued LiabilitiesFree

Study Frameworks

Payables and Accrued Liabilities — Classification

Payables and Accrued Liabilities

Trade Payables

Record when goods/services received

Subledger → GL reconciliation

Accrued Liabilities

Wages and bonuses payable

Vacation / compensated absences

Self-insurance liabilities

Dividends payable (after declaration)

Asset Retirement Obligations (ASC 410)

PV of estimated future retirement cost

Capitalize as part of asset cost

Accrete liability to full amount over time

Exit and Disposal Activities (ASC 420)

One-time termination benefits

Contract termination costs

Recognize at fair value when liability is incurred

Exit or Disposal Activity: When to Recognize a Liability (ASC 420)

Is this a one-time employee termination benefit under a plan that is not an ongoing benefit arrangement?

Yes

Have the employees been communicated the termination plan and the plan meets the criteria for a liability?

Yes

Are employees required to render future service beyond a minimum retention period to receive the benefit?

Yes

Recognize ratably over the future service period

Recognize the full liability at the communication date

Do not recognize — liability has not been incurred yet

Is this a cost to terminate a contract before its end (e.g., lease termination penalty)?

Yes

Recognize when the entity terminates the contract in accordance with its terms (at FV)

Is this another cost associated with the exit activity (e.g., relocation, employee retraining)?

Yes

Recognize when the liability is incurred (not at the plan commitment date)

Not an ASC 420 item — evaluate under other applicable guidance

Accretion Expense (ARO)

Beginning ARO Liability × Credit-Adjusted Risk-Free Rate

Recognized each period as the ARO liability accretes toward its full settlement amount. DR Accretion Expense, CR ARO Liability

Accrued Liabilities — Recognition Triggers

Liability Type	When to Recognize	Measurement	Key ASC
Accounts payable	When goods/services received	Invoice amount	General GAAP
Accrued wages/bonuses	As employees render service	Estimated amount earned	ASC 710
Compensated absences (vacation)	As employees earn the right	Estimated cost when taken	ASC 710-10
Asset retirement obligation	When legal obligation incurred (e.g., at asset acquisition)	PV of estimated future cost	ASC 410-20
One-time termination benefits	When plan communicated to employees	FV of benefits; ratably if future service required	ASC 420
Contract termination costs	When contract is terminated	FV of remaining obligation	ASC 420
Self-insurance liability	When loss is probable and estimable	Estimated undiscounted claims	ASC 450
Dividends payable	On declaration date (not record or payment date)	Declared amount per share × shares	General GAAP

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