Financial statement users are interested in the obligations that a company has from past transactions. It is important to determine which liabilities are current and which are non-current. Some company obligations are not recorded on the balance sheet itself, however; instead they are disclosed in the notes to the financial statements. Instructions
Write a memorandum to a friend of yours who has inherited some money and would like to invest in some companies.
Your friend plans to get professional advice before investing but would like you to review some basics with her. For instance, she is trying to determine the amount of cash that a company will have to pay within the next five years. She knows she should start with the liabilities that are on the balance sheet, but she is wondering if any of those can be settled without the company having to write a cheque. She would also like to know what kinds of liabilities could be buried somewhere in the notes to the financial statements.