Ch11n - Oct 12 2010 Accounting 220(Holmes Notes Ch 11...

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Oct. 12, 2010 Accounting 220 (Holmes) Notes Ch. 11 Current Liabilities and Payroll Accounting (p. 486) Current Liability – a debt with two key features The company reasonably expects to pay the debt from existing current assets or current liabilities The company will pay the debt within one year or the operating cycle, whichever is longer Examples: Notes Payable, Accounts Payable, Unearned Revenue, Accrued Liabilities (taxes, salaries, wages, interest) Long-term Liability – debts that do not meet both criteria. Notes Payable Obligations in the form of written promissory notes Give lender formal proof of the obligation Borrower pays interest Interest accrues over the life of the note Company periodically records the accrual At maturity the value + the interest due (interest can be paid during the note life.) Amount due within one year is Current Liability – the rest is Long-Term Liability Interest = Face Value of Note x Annual Interest Rate x Time of Terms of One Year Receiver of Cash Giver of Cash (Maker of the Note) Cash Notes Receivable Notes Payable Cash Sales Taxes Payable (pl 487) Expressed as a percentage of sales Retailer is the Collection Agent for the taxing authority Not reported as an expense Retailer collects tax from customer when sales occurs Retailer remits the collections to the State’s Department of Revenue Collecting from Customer Remitting to the State Cash Sales Taxes Payable Sales Taxes Payable Cash Sales Tax = Total Receipts / (1 + Percent of Sales Tax Unearned Revenues (p. 488) Revenues that are received before the company delivers goods or provides services Can be material for some companies Accounting for Unearned Revenues Collecting from Customer Cash Unearned Revenue - (Liability Account - identifying the source of the unearned revenue) Earning the Revenue Unearned Revenue - (Liability Account - identifying the source of the unearned revenue) Revenue Account Current Maturities of Long-Term Debt (p. 489) Portion of long-term debt that comes due in the current year – considered a current liability Current maturities of long-term debt are often termed long-term debt due within one year. No adjusting entry is done to recognize the current maturity of long-term debt Each portion is recognized in the proper statement classification of each balance sheet account. Statement Presentation (p. 489) 1 st category under Liabilities on the balance sheet. Each principal type of current liability is listed separately Acct 220 Page 1
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Disclosure of the terms of the notes payable and other key information about the individual items in the notes. List by: 1 st – Notes Payable, 2 nd – Accounts Payable, 3 rd – Order of Magnitude Analysis (p. 490) Liquidity – the ability to pay maturing obligations and meet unexpected needs for cash.
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