Discussion and 2 replies

What is the purpose of the post-closing trial balance

Post by classmate 1

What's the difference between a current liability and a long-term liability? 

According to the text, the driving factor in the difference between the two is the length of time before the liability will be satisfied.  Typically, if it's a year or less, it's a current liability, and anything that will take longer than a year is a long-term. 

  As long-term liabilities get paid-off, and when their resolution date comes to be within a year, it then becomes a current liability.  If the long-term liability is something that are renewed every year instead of being paid off, they will continually be considered long-term. 

Warren, Reeve & Duchac. (2019) Corporate Financial Accounting. 15th edition. Cengage

Post by classmate 2

 What types of accounts are referred to as temporary or nominal accounts?

The  book defines a temporary/nominal account as accounts on the income  statement that are not carried forward from year to year. The accounts  that are considered to be temporary/nominal accounts are revenue and  expense accounts.  If a company didn't close out revenue accounts, it  could give the appearance that they are more profitable than they really  are. This would be a result of reflecting previous years of revenue  balances. Similarly, with expense accounts, one might look and assume  that a company's expenses appear to be out of control if this account  was carried forward.