lec09 - Slide 1 Chapter 9: Reporting and Slide 2 Key...

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Unformatted text preview: Slide 1 Chapter 9: Reporting and Slide 2 Key Learning Objectives Define, measure, and report current liabilities. Report contingent liabilities Report operating and capital lease. Report notes payable. Understand the concept of time value of money. Slide 3 Slide 3 Understanding the Business The acquisition of assets is financed from two sources: O bj1 0 Liabilities - funds from creditors O bj1 0 1 O bj1 0 2 O bj1 0 3 O bj1 0 4 O bj1 0 5 Equity - funds from owners Slide 4 Slide 4 Liabilities Defined and Classified Liabilities are measured at their current cash equivalent (the amount a creditor would accept to cancel the debt) at Slide 5 Slide 5 Liabilities Defined and Classified Defined as probable debts or obligations of the entity that result from past transactions, which will be paid with assets or services. Maturity = 1 year or less Maturity > 1 year Current Liabilities Noncurrent Liabilities Slide 6 Slide 6 Current Liabilities Account Name Also Called Definition Accounts Payable Trade Accounts Payable Obligations to pay for goods and services used in the basic operating activities of the business. Accrued Liabilities Accrued Expenses Obligations related to expenses that have been incurred, but will not be paid until the subsequent period. Notes Payable N/A Obligations due supported by a formal written contract. Deferred Revenues Unearned Revenues Obligations arising when cash is received prior to the related revenue being earned. Slide 7 Slide 7 Notes Payable A note payable specifies the interest rate associated with the borrowing. To the lender, interest is a revenue . To the borrower, interest is an expense . Interest = Principal Interest Rate Time When computing interest for one year, Time equals 1. When the computation period is less than Slide 8 Slide 8 Notes Payable Toyota borrows $100,000 for 2 months at an annual interest rate of 12%. Compute the interest on the note for the loan period. O bj1 0 7 Slide 9 Slide 9 Working Capital and Cash Flows Working Capital = Current Assets- Current Liabilities Changes in working capital accounts are important to managers and analysts because they have a direct impact on cash flows from operating activities reported on the statement of cash flows. Slide 10 Slide 10 Working capital and cash flow Operating Activity (Indirect method) Effect on Cash Flows Operating activities (indirect method) Net income $xxx Adjusted for: Decreases in current assets* or increase in current liabilities + Adjusted for: Increases in current assets* or decreases in current liabilitie- * Other than cash Slide 11 Working capital and cash flow: Cathay Pacific Airways Slide 12 Slide 12 Contingent Liabilities Probability of future sacrifice . . ....
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lec09 - Slide 1 Chapter 9: Reporting and Slide 2 Key...

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