FAR, Financial Accounting and Reporting

Sources for Liabilities: Payables and Accrued Liabilities

Last reviewed 2026-10-06

The standards and authorities behind PocketCPA's FAR lessons on Liabilities: Payables and Accrued Liabilities. The topic rests on ASC 405.

About this topic

Almost every set of financial statements carries a stack of ordinary obligations: bills from suppliers, wages earned but not yet paid, interest running on a loan, taxes owed to the government. These are the payables and accrued liabilities that ASC 405 organizes.

The topic itself is short and mostly acts as a signpost. It points to the specific guidance that governs each kind of liability. That routing job is worth learning on its own, because a large share of FAR liability questions are really questions about which Topic applies.

Key points

A liability is recognized when an obligation is probable and the amount is reasonably estimable.
Warranties are accrued at the time of sale based on estimated claims; the assurance type is not a separate performance obligation.
Compensated absences (vacation, sick leave) are accrued when the obligation is attributable to services already rendered.
Accounts payable are recorded at settlement value; trade discounts reduce the purchase price when taken.

What the lessons cover

The ASC 405 landscape: scope and cross-references (ASC 405-10-05-2)
Accounts payable and accrued liabilities
Accrued compensation and compensated absences (ASC 710-10-25-1)
Other accrued liabilities: interest, taxes, and bonuses
Derecognition of liabilities (ASC 405-20-40-1)
Joint and several liability arrangements (ASC 405-40-30-1)
Disclosure and presentation (ASC 405-50-50-3)

Authoritative references

ASC 405-10-05-1, the makeup of the Topic: the Overall Subtopic plus extinguishments, insurance-related assessments, joint and several liability arrangements, and supplier finance programs.
ASC 405-10-05-2, the signpost list that routes each kind of liability to the Topic that governs it.
ASC 405-20-15-2, application of the extinguishment Subtopic to all liabilities, financial and nonfinancial.
ASC 405-20-40-1, the two conditions for extinguishment: payment with release, or legal release as primary obligor.
ASC 405-20-40-2, a release that leaves the entity secondarily liable as a guarantor, accounted for as two separate events.
ASC 405-20-40-3 and 40-4, the scope exclusion and derecognition for prepaid stored-value products and escheatable amounts.
ASC 405-40-15-1 and 15-2, the scope test: the total obligation with the co-obligors must be fixed, not just the entity's own share.
ASC 405-40-30-1, measurement of a joint and several liability as the agreed share plus the additional amount expected to be paid.
ASC 405-40-50-1, disclosure of the total outstanding obligation alongside the amount recognized.
ASC 405-50-10-2, supplier finance programs as a disclosure-only Subtopic that does not address recognition or presentation.
ASC 405-50-50-3, the annual disclosure of key terms, balance sheet location, amount outstanding, and the rollforward.
ASC 405-50-50-4, the interim requirement, limited to the confirmed amount outstanding.
ASC 405-50-55-4, the illustration of the rollforward.
ASC 710-10-25-1, the four conditions for accruing compensated absences.
ASC 712-10-25-4 and 25-5, the same four-condition style of test for postemployment benefits.
ASC 835-30-15-3, the exclusion of ordinary trade payables from imputation of interest.
ASC 460-10-25-4 and ASC 460-10-30-2, recognition of a stand-ready obligation for a guarantee and its measurement at fair value at inception.
ASC 606-10-55-46 through 55-49, breakage on customer prepayments and the liability for unexercised rights that must be remitted to another party.

Recognition and measurement for the items this Topic routes elsewhere belong to other Topics:

Asset retirement and environmental obligations, ASC 410.
Contingencies and warranties, ASC 450, including the probable-and-estimable test at ASC 450-20-25-2.
Guarantees, ASC 460.
Debt and the classification of refinanced short-term obligations, ASC 470, including ASC 470-10-45-14.
Compensated absences and deferred compensation, ASC 710.
Postemployment benefits, ASC 712.
Income taxes payable, ASC 740.

How PocketCPA uses these sources

Every lesson is written in original words and cites the paragraph each rule comes from. No standard's text is reproduced. How lessons and questions are written and checked is set out in our methodology.