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In considering the scope of this chapter, it is helpful to understand the conceptual framework related to liabilities, which is included in FASB Concepts Statement No. 6, Elements of Financial Statements.

Excerpt from FASB Concepts Statement No. 6

Liabilities are probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events.

As further discussed in CON 6, in order to be classified as a liability, the following characteristics must be present:
  • There is a present duty or responsibility to one or more entities that entails settlement by probable future transfer, or the use of assets at a specified or determinable date, on occurrence of a specified event, or on demand
  • There is little or no discretion in avoiding a future transfer of assets or providing services
  • An obligating event has already happened
As discussed in FSP 2, a reporting entity should consider the ASC Master Glossary definition of current liabilities in preparing a classified balance sheet.

Definition from ASC Master Glossary

Current liabilities: Current liabilities is used principally to designate obligations whose liquidation is reasonably expected to require the use of existing resources properly classifiable as current assets, or the creation of other current liabilities.

The discussion in this chapter does not address current versus noncurrent classification. Each reporting entity should consider their facts and circumstances in light of the ASC definition when determining how to classify liabilities in their financial statements.
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