Sales incentives, future product returns and product warranties are classified as current liabilities. Unlike accounts payable where both payee and amount are known, three of them are not; payee is unknown and amount is estimated—therefore, they are accounted differently. So, what is the journal entry for each of them? You may ask. That is the topic I am going to discuss through this post.

What commonly known for current liabilities, in general, are obligations that due on demand or will be due on demand within one year—or the operating cycle (if it is longer.)

According to the FASB’s ASC 210-10-20, current liabilities are obligations whose liquidation is reasonably expected to require the use of existing resources classified as current assets OR the creation of other current liabilities. (Important note: the definition excludes from the current liability classification any currently maturing obligations that will be satisfied by using long-term assets and currently maturing obligations expected to be refinanced.) Current liabilities’ definition is surely important, but how to measure and how to account the current liabilities are even more important for those who actually conduct accounting works on daily basis.