Future Commitments query

1

Question from a non-accountant.

When might values appear in “Future Commitments” on the Balance Sheet and how do they differ from Liabilities ?

The reason I’m asking is that I was wondering whether this would help me identify something where I know I will have a financial obligation but for which I’ve not yet placed an order.

My specific example: we have a community cinema. People buy tickets for a film that we will show in 2 month’s time. In order for that film show to go ahead I will have to purchase a film license - however, I never order that license until a couple of weeks before the show, and the payment is not made until after the show has completed I’ve therefore got cash in my bank account which gives a false impression of our overall liabilities.

Through my non-accountant eyes that would be a future commitment - but is that technically correct ? And if so, how do values appear on the Future Commitment line in the balance sheet ?

Thanks, and apologies if this is a dumb question.

2

Your accountant is correct. Future commitments are usually disclosed as notes to the financial statements and do not require an accounting entry until the transaction is completed.

3

You could put this way - Future Commitments are potential liabilities whereas actual commitments are real Liabilities.

There is a difference between cash in the bank and cash position, cash in the bank minus liabilities = cash position - besides your overall liabilities is illustrated on the balance sheet so how can that be a false impression.