Chapter 9 Reporting and interpreting liabilities_Notes

Chapter 9 Reporting - Chapter 9 reporting and interpreting liabilities 19:07:00 Businesses finance assets by Funds supplied by creditors(debt Funds

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter 9 – reporting and interpreting liabilities  18/02/2009 20:07:00 Businesses finance assets by Funds supplied by creditors (debt) Funds provided by owners (equity) Debt and equity together is called capital structure Debt is riskier than equity because legal obligation to pay it back Learning objective 1 - define, measure, and report current liabilities. Liabilities are probable obligations that result from past transactions and will be  paid with assets or services Current liabilities – short term liabilities that will be paid within a year Noncurrent liabilities are all other  Measured at current cash equivalent at incurred – amount creditor would  accept to cancel debt Accounts payable, also known as trade accounts payable, are obligations to  pay for goods and services used in the basic operating activities of the  business. Accrued liabilities, also known as accrued expenses, are obligations related  to expenses that have been incurred, but will not be paid until the subsequent  period. Notes payable are obligations due supported by a formal written contract. Deferred revenues, also known as unearned revenues, are obligations arising  when cash is received prior to the related revenue being earned. Payroll taxes  including federal, state, and local income taxes, Social Security taxes, and  federal and state unemployment taxes Employees pay some of these taxes and employers pay others.   Employers  are required to withhold income taxes for each employee income tax withheld is recorded by the employer as a current liability between  the date of the deduction and the date the amount is remitted to the  government social security taxes paid by employees are called FICA – Federal Insurance  Contributions Act
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
o imposed in equal amounts on employee and employer o tax rate was 6.2% on the first $90,000 o a separate 1.45% Medicare tax applies to all income All items withheld from an employee’s compensation create current liabilities  for the employer Learning Objective 2 – use the current ratio Current ratio = current assets / current liabilities indicator of a company’s ability to meet its current obligations high ratio normally suggests good liquidity, too high a ratio suggests  inefficient use of resources An old rule of thumb was that companies should have a current ratio between  1 and 2.   Learning Objective 3 - analyze the accounts payable turnover ratio.
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 02/20/2009 for the course AEM 221 taught by Professor Little,j. during the Fall '08 term at Cornell University (Engineering School).

Page1 / 9

Chapter 9 Reporting - Chapter 9 reporting and interpreting liabilities 19:07:00 Businesses finance assets by Funds supplied by creditors(debt Funds

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online