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 accountants include short-term unearned revenues as current liabilities? Do they meet the definition of liabilities found in the conceptual framework? Do they affect working capital? Explain. 5 marks

2) Present arguments for excluding unearned revenues from current liabilities. Do they affect liquidity? Explain. 5 marks