StudyGuideChap10 - CHAPTER 10 Reporting and Analyzing...

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

View Full Document Right Arrow Icon
CHAPTER 10 Reporting and Analyzing Liabilities Study Objectives Explain a current liability and identify the major types of current liabilities. Describe the accounting for notes payable. Explain the accounting for other current liabilities. Explain why bonds are issued and identify the types of bonds. Prepare the entries for the issuance of bonds and interest expense. Describe the entries when bonds are redeemed. Identify the requirements for the financial statement presentation and analysis of liabilities. Chapter Outline Study Objective 1 - Explain a Current Liability and Identify the Major Types of Current Liabilities 1. Liabilities are defined as “creditors' claims on total assets” and as “existing debts and obligations.” a. These claims, debts, and obligations must be settled or paid at some time in the future by the transfer of assets or services. i. A current liability is a debt that can reasonably be expected to be paid 1. from existing current assets or through the creation of other current liabilities, and 2. within one year or the operating cycle, whichever is longer. ii. Long-term liabilities are debts that do not meet both of the aforementioned criteria. 2. The different types of current liabilities include a. notes payable, b. accounts payable, c. unearned revenues, and d. accrued liabilities such as taxes, salaries and wages, and interest. Study objective 2 - Describe the Accounting for Notes Payable 1. Obligations in the form of written notes are recorded as notes payable. a. Notes payable are often used instead of accounts payable because they i. give the lender written documentation of the obligation in case legal remedies are needed to collect the debt and ii. they will be satisfied prior to accounts receivable in any reorganization proceeding b. Notes payable usually require the borrower to pay interest and frequently are issued to meet short- term financing needs. c. Notes are issued for varying periods of time. i. Notes due for payment within one year of the balance sheet date are generally classified as current liabilities .
Background image of page 1

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

View Full DocumentRight Arrow Icon
Accounting for Notes and Interest Illustrated Assume Cole Williams Co. is borrowing $100,000 from the First National Bank on September 1, 2004. The note earns interest at a rate of 12% and matures in four months. On September 1 Cole Williams Co. receives $100,000 and makes the following journal entry: Sep. 1 Cash 100,000 Notes Payable 100,000 (To record issuance of 12%, 4-month note to First National Bank) The interest, which accrues over the life of the note, must be recorded when financial statements are prepared at December 31. Dec. 31 Interest Expense 4,000 I n t e r
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 04/04/2010 for the course ACCOUTING ACCOUNTING taught by Professor Paigee.gee during the Fall '07 term at N.C. State.

Page1 / 33

StudyGuideChap10 - CHAPTER 10 Reporting and Analyzing...

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