Ch+8+outline-2 - Chapter 8 Currrent Liabilities Categories...

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Currrent Liabilities Chapter 8 Chapter 8
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Categories of Current Liabilities Known amounts Known amounts Unknown amounts Unknown amounts Current liabilities are obligations due within Current liabilities are obligations due within one year of balance sheet date one year of balance sheet date
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Current Liabilities of Known Amount Accounts Payable Accounts Payable Amounts owed for products Amounts owed for products and services purchased on and services purchased on account account Short-Term Notes Payable Short-Term Notes Payable Common form of financing; Common form of financing; company incurs interest company incurs interest expense expense Accrued Liabilities Accrued Liabilities Expense incurred, but not yet Expense incurred, but not yet paid; often an adjusting entry paid; often an adjusting entry includes salaries & interest payable includes salaries & interest payable Sales Tax Payable Sales Tax Payable Tax levied by state on retail sales; company collects from company collects from customer and remits to gov’t customer and remits to gov’t Payroll Liabilities Payroll Liabilities Salaries & wages paid to Salaries & wages paid to employees; also includes income employees; also includes income taxes and FICA taxes withheld taxes and FICA taxes withheld Unearned revenues Unearned revenues Customers makes payment Customers makes payment before receiving product before receiving product or service or service
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Reporting Current Liabilities o Distinguishing between current and long-term liabilities helps investors and creditors assess risk. o Companies often prefer to report a liability as long-term because it may cause the firm to appear less risky. o Many companies list notes payable first, followed by accounts payable, and then other current liabilities from largest to smallest.
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Entries for Short-Term Notes Payable Date Accounts Debit Credit 1-Dec 1-Dec Inventory Inventory $10,000 $10,000         Notes Payable, Short-Term Notes Payable, Short-Term     $10,000 $10,000 Purchased inventory by issuing a $10,000, 12%, 90-day note payable Purchased inventory by issuing a $10,000, 12%, 90-day note payable 31-Dec 31-Dec Interest Expense Interest Expense $100 $100     Interest Payable Interest Payable   $100 $100 Accrual of interest at year-end (10,000 x 12% x 30/360) Accrual of interest at year-end (10,000 x 12% x 30/360) Suppose a company purchases inventory by signing Suppose a company purchases inventory by signing a $10,000, 12% 90-day note payable on December 1 a $10,000, 12% 90-day note payable on December 1
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Entries for Short-Term Notes Payable 1-Mar 1-Mar Notes Payable, Short-Term Notes Payable, Short-Term $10,000 $10,000         Interest Payable Interest Payable $100 $100     Interest Expense Interest Expense $200 $200         Cash Cash     $10,300 $10,300 Payment of the note and interest at maturity Payment of the note and interest at maturity The maturity date of the note would be March 1 The maturity date of the note would be March 1 of the following year of the following year
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Line of Credit o An informal agreement that permits a company
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