Short-term deferrals (prepaids and unearned revenues)are classified as current assets and current liabilities. As such,they are included in working capital.
Required:
Some argue that deferred liabilities will not be“paid”.
1) Why do accountantsinclude short-term unearned revenues as current liabilities? Dothey meet the definition of liabilities found in the conceptualframework? Do they affect working capital? Explain. 5marks
2) Present arguments forexcluding unearned revenues from current liabilities. Do theyaffect liquidity? Explain. 5 marks
