obligation

Examples of obligation in the following topics:

• Liabilities

  • Examples of long-term liabilities include long-term bonds, leases, pension obligations, and debentures.
  • A transaction or event obligating the entity that has already occurred
  • Liabilities in financial accounting need not be legally enforceable, but can be based on equitable obligations or constructive obligations.
  • An equitable obligation is a duty based on ethical or moral considerations.
  • A constructive obligation is an obligation that is implied by a set of circumstances in a particular situation, as opposed to a contractually based obligation.

• Defining Liabilities

  • A liability is defined as an obligation of an entity arising from past transactions/events and settled through the transfer of assets.
  • In financial accounting, a liability is defined as an obligation of an entity arising from past transactions or events, the settlement of which may result in the transfer or use of assets, provision of services or other yielding of economic benefits in the future.
  • A duty or responsibility that obligates the entity to another, leaving it little or no discretion to avoid settlement.
  • A transaction or event that has already occurred and which obligates the entity.
  • Long-term liabilities have maturity dates that extend past one year, such as bonds payable and pension obligations.

• Liquidity Ratios

  • Liquidity ratios measure how quickly assets can be turned into cash in order to pay the company's short-term obligations.
  • X's Acid Test Ratio = 1,000 / 1,000 = 1, which means that it can pay off short-term obligations.
  • A low liquidity ratio means a firm may struggle to pay short-term obligations.
  • Low values for the current or quick ratios (values less than 1) indicate that a firm may have difficulty meeting current obligations.
  • If an organization has good long-term prospects, it may be able to borrow against those prospects to meet current obligations.

• Defining Financial Leverage

  • Financial leverage, in a corporate finance sense, exists when a company finances assets and internal operations through fixed obligations.
  • Financial leverage is the financing of assets and internal operations with fixed obligations.
  • Examples of these types of obligations include debt and preferred stock.
  • As a company uses more financial leverage, higher levels of operating income are needed to cover the additional fixed obligations (interest on debt and fixed dividends on preferred stock).

• Genome Reduction

  • A common explanation for these keen manipulative abilities is the compact and efficient genomic structure consistently found in obligate endosymbionts.
  • In fact, as much as 90% of the genetic material can be lost when a species makes the evolutionary transition from a free-living to obligate intracellular lifestyle.
  • One obligate endosymbiont of psyllid, Candidatus Carsonella ruddii, has the smallest genome currently known among cellular organisms at 160kb.
  • It is important to note, however, that some obligate intracellular species have positive fitness effects on their hosts.
  • The reductive evolution model has been proposed as an effort to define the genomic commonalities seen in all obligate endosymbionts.

• Being Aware of Off-Balance-Sheet Financing

  • Off-Balance-Sheet-Financing represents rights to use assets or obligations that are not reported on balance sheets to pay liabilities.
  • A parent company may not be required to consolidate a subsidiary into its financial statements for reporting purposes; however the parent company may be obligated to pay the unconsolidated subsidiaries liabilities.
  • A liability is not recognized on the lessee's balance sheet even though the lessee has the obligation to pay an agreed upon amount in the future.

• Reasons for Maintaining Cash on Hand

  • The main reason a business maintains cash on hand is to meet financial obligations.
  • Cash is seen as a reserve for payments and as a way to meet financial obligations.
  • In banking, liquidity is the ability to meet obligations when they come due without incurring unacceptable losses.

• Tax Accounting

  • Tax accounting couples legal obligations with financial accounting to ensure adherence to current tax laws.
  • There are specialized accounting principles and obligations for each area of operation which must be met.
  • This comes along with its fair share of obligations, paperwork, and approvals from the governing bodies.

• The Common Financial Instruments

• Debt

  • A debt is an obligation owed by one party (the debtor) to a second party (the creditor).
  • A debt is an obligation owed by one party (the debtor) to a second party (the creditor).
  • A debt obligation is considered secured if creditors have recourse to the assets of the company on a proprietary basis or otherwise ahead of general claims against the company.
  • Unsecured debt comprises financial obligations, where creditors do not have recourse to the assets of the borrower to satisfy their claims.
  • Private debt involves bank-loan type obligations, whether senior or mezzanine.