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Unformatted text preview: Liabilities 05/05/2009 11:47:00 A liability that is both probable and capable of being reasonably estimated must be recorded and reported on the balance sheet A liability that is reasonably possible must be disclosed in a note in the financial statements whether it can be estimated or not Remote contingencies are not disclosed Current = most commonly Accounts Payable Short term obligations that will be paid within the current operating cycle or within one year of the balance sheet date o (whichever is longer) o Current Ratio: current assets/current liabilities o Accounts Payable turnover : costs of goods sold/acocounts payable Accrued Liabilities are expenses that have been incurred but have not been paid at the end of the accounting period Cash has not flowed Deferred Revenue: revenue that has been colleted but not earned, cash has flowedconsidered liabilities until the goods or services are provided Long term liabilities Liability supported by an agreement where the creditor takes ownership of an asset if the liability is not satisfied o This is secured debt o Unsecured debt is when the creditor relies primarily on the borrowers integrity and general earning power o Debt can also be raised through banks, insurance companies and pension plans this is Private placement note payable written promise to pay a stated sum at the maturity date ( due date) Interest Makes for the time value of money Interest = principal * interest rate * time (1) principal: the amount of cash that was borrowed...
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- Spring '08