Chapter 13 Notes

Chapter 13 Notes - Chapter 13 Current Liabilities and...

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

View Full Document Right Arrow Icon
Chapter 13: Current Liabilities and Contingencies Section 1: Current Liabilities What is a Liability? - Liabilities - probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events - A liability has 3 essential characteristics: o It is a present obligation that entails settlement by probable future transfer or use of cash, goods, or services o It is an unavoidable obligation o The transaction or other event creating the obligation has already occurred - Because liabilities involve future disbursements of assets or services, one of their most important features I the date on which they are payable - Basic division of liabilities: o Current liabilities o Long-term debt What is a Current Liability? - Current Liabilities - obligation whose liquidation is reasonable expected to require use of existing resources properly classified as current assets, or the creation of other current liabilities - Operating Cycle - period of time elapsing between the acquisition of goods and services involved in the manufacturing process and the final cash realization resulting from sales and subsequent collections - Typical current liabilities: o Accounts payable o Notes payable
Background image of page 1

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

View Full DocumentRight Arrow Icon
o Current maturities of long-term debt o Short-term obligations expected to be refinanced o Dividends payable o Customer advances and deposits o Unearned revenues o Sales taxes payable o Income taxes payable o Employee-related liabilities Accounts Payable - Accounts payable (trade accounts payable) - balances owed to others for goods, supplies, or services purchase on open account - Record liabilities for purchases of goods upon receipt of the goods or at the time of title passage Notes Payable - Notes payable - written promises to pay a certain sum of money on a specified future date - Some industries requires notes as par t of the sales/purchases transaction in lieu of the normal extension of open account credit - Classified as short-term or long-term and may also be interest-bearing or zero-interest- bearing - Interest-Bearing Note Issued o Example - Zero-Interest-Bearing Note Issued o Does not state an interest rate on the face of the note, interest is still charged o Bank takes its fee “up front” rather than at the date of maturity o Example o Illustration 13-1 o Discount on Notes Payable balance represents interest expense chargeable to future periods Page 2 of 16
Background image of page 2
Current Maturities of Long-Term Debt - Current maturities of long-term debt - reported as part of their current liabilities the portion of bonds, mortgage notes, and other long-term indebtedness that matures within the next fiscal year - Exclude long-term debts maturing currently as current liabilities if they are to be: o Retired by assets accumulated for this purpose that properly have not been shown as current assets o Refinanced, or retired from the proceeds of a new debt issue o
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.

This note was uploaded on 02/22/2011 for the course BUAD 362 taught by Professor Frazer during the Spring '10 term at Millersville.

Page1 / 16

Chapter 13 Notes - Chapter 13 Current Liabilities and...

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