Commitments,such as contracts for future transactions:
A)Are classified as liabilities.
B)Are classified as assets.
C)Are footnoted in financial statements,if material.
D)Are only disclosed if negative due to the principle of conservatism.

Question

Quizplus · Accepted Answer

Commitments, such as contracts for future transactions, are not classified as liabilities or assets. However, they may be footnoted in financial statements if they are material enough to affect the judgment of users of the financial statements. This disclosure helps users to understand the potential future cash outflows or inflows of the entity. The principle of conservatism does not apply to the disclosure of commitments, as all material information should be disclosed regardless of whether it has a negative or positive impact on the entity.

Commitments,such as Contracts for Future Transactions