FAR: Payables and accrued liabilities, recognition, classification, and calculations

The rules, one page each

1. FOB shipping point vs destination: when to record inventory and accounts payableContrasting cases

   Under FOB shipping point, title and the buyer’s obligation pass at shipment; under FOB destination, they pass at delivery. Unbilled does not matter if title has passed.

2. Accrue services and utilities used but unbilled at year-endStep by step

   Accrue an expense and a liability when goods or services have been received by the reporting date and the amount can be reasonably estimated.

3. Accrue wages payable and employer payroll taxesWorked example

   Accrue wages at gross for services through year-end. Employee withholdings do not increase total expense or liability beyond gross wages; add employer payroll taxes on the accrued wages.

4. Bonus accruals: when a plan creates a present obligation (and how to measure)Decision tree

   Accrue bonuses when the obligating event (employee service under a nondiscretionary plan) has occurred by year‑end and the amount is probable and reasonably estimable; a requirement to be employed on the payment date does not preclude accruing the total obligation.

5. Compensated absences (vacation/PTO): what to accrue and what to skipSort it

   Accrue compensated absences if they are attributable to services already rendered, the rights either vest or accumulate, payment is probable, and the amount is reasonably estimable; do not accrue nonaccumulating, nonvesting sick leave.

6. Warranties and loss contingencies: recognition, measurement, and presentationStep by step

   Recognize assurance‑type warranty liabilities for expected costs of fulfilling warranties on current‑year sales. For ASC 450 loss contingencies, accrue when loss is probable and reasonably estimable, measuring a range at the minimum if no better estimate exists and recognizing probable insurance recoveries separately.

7. Current liabilities: what belongs in accrued liabilities vs accounts payable, and other presentation callsSort it

   Classify invoiced trade obligations as accounts payable; expenses incurred but unbilled as accrued liabilities; customer advances as contract liabilities; and use the longer of one year or the normal operating cycle for current classification.

8. Interest payable on notes: year‑end accrual and presentationWorked example

   Accrue interest expense and interest payable for the portion of the interest period elapsed by year‑end; keep the note principal and accrued interest in separate accounts.