Chapter 13 331

Chapter 13 331 - Lecture Notes for Chapter 13 (ACCT 331)...

Info iconThis preview shows pages 1–4. Sign up to view the full content.

View Full Document Right Arrow Icon
Lecture Notes for Chapter 13 (ACCT 331) Current Liabilities and Contingencies Partha Sengupta Current Liabilities Ψ Liabilities: Situations existing today that will result in probable future sacrifices (give up asset, provide services etc.) in the future. Ψ Current liabilities : Sacrifices need to be made within one year, or the firm’s operating cycle, whichever is longer. 1. Accounts Payable Ψ Obligations to suppliers of merchandise or of services purchased on open account. Inventory xx Accounts payable xx 2. Notes Payable: Ξ Obligations in the form of written promises to pay a certain sum of money in the future. Ξ Lender has written documentation of the obligation in case legal remedies are needed to collect the debt. Ξ Borrower is usually required to pay interest (irrespective of whether the note is interest bearing or non-interest bearing). Ξ Short-term notes payable: obligations due within one year or the current operating cycle (whichever is longer). Ξ Short-term notes are usually associated with lower interest rate (compared to long term notes). Ξ Interest bearing note: Interest paid as a certain percent of face value (principal). Ξ Non-interest bearing note: No explicit interest on face value but amount paid is greater than amount borrowed. Ξ Line of credit: Allows companies to borrow a certain predetermined amount over a certain period of time. These can be noncommitted (money can be borrowed without having to follow formal loan procedures) or committed (formal paperwork completed and a fee might be paid). Ξ Examples. 1
Background image of page 1

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

View Full DocumentRight Arrow Icon
Example 13-1 : Borrow 10,000 for 6 months with 8% interest on 10/1/04. Example 13-2: Company borrows $100,000 for 5 months on 9/1/04 . Amount to be paid back is $120,000. 3. Secured loans: Ξ Certain specific assets are pledged as collateral or security on the loan. 4. Commercial Paper: These are unsecured loans of maturity ranging between 30 and 270 days issued in denominations of $25,000 or more. These could be backed by a line of credit. 5. Vacations and Sick Days Accrued: 2
Background image of page 2
Ξ Companies provide paid vacations to most employees. Ξ If the vacation earned during a year is not taken by year-end, the vacation pay has to be accrued (liability recorded) at year-end so long as the payment is probable and the amount is estimable. Ξ
Background image of page 3

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

View Full DocumentRight Arrow Icon
Image of page 4
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 10

Chapter 13 331 - Lecture Notes for Chapter 13 (ACCT 331)...

This preview shows document pages 1 - 4. Sign up to view the full document.

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