07 Liabilities - 25/01/2011 EngineeringFinanceand Economics...

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25/01/2011 1 1 Engineering Finance and Economics 7. Liabilities 2 Liabilities Current liabilities are obligations due within one year or within the company’s normal operating cycle if it is longer than one year Known amounts Estimated amounts Long term liabilities are obligations due in more than one year or more than one normal company operating cycle 3 8 3 Known Current Liabilities Accounts payable Short term notes payable Goods and services tax payable Sales tax payable Accrued expenses Payroll liabilities Unearned revenues Current portion of long term debt
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25/01/2011 2 4 Current Liabilities Accounts payable are amounts owed to suppliers for goods or services purchased on account Short term notes payable are notes payable due within one year 5 8 5 Short Term Notes Payable In addition to recording the note payable, the business must also pay interest expense. On October 1, a business purchased inventory for $8,000 by issuing a 6 month, 10% note payable. The fiscal year ends on December 31. 6 8 6 Short Term Notes Payable October 1 Inventory 8,000 Notes Payable, Short-Term 8,000 Purchase of inventory by issuing a 6-month, 10% note payable How much interest was accrued as of Dec. 31? $8,000 × 10% × (3/12) = $200
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25/01/2011 3 7 8 7 Short Term Notes Payable December 31 Interest expense 8,000 Interest payable 8,000 Adjusting entry to accrue interest expense at year-end 8 8 8 Short Term Notes Payable How is the payment at maturity recorded? March 31, 2009 Note Payable, Short Term 8,000 Interest Payable 200 Interest Expense ($8,000 x 0.10 x 3/12) 200 Cash [$8,000 + ($8,000 x 0.10 x 6/12)] 8,400 9 8 9 Goods and Services Tax (GST) Payable GST of 5% is a consumption tax charged on almost all business transactions. Only the ultimate consumer pays GST. GST registrants who are not final consumers can deduct GST paid from GST collected and only remit the difference to the federal government.
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25/01/2011 4 10 GST Example A store purchases lawn rakes for $3000 plus GST The store sells the rakes for $6000 plus GST Item Debit Credit Inventory 3000 GST ITC (Input Tax Credit) 150 Accounts Payable 3150 To record purchase of inventory 11 GST Example Item Debit Credit Accounts Receivable 6300 COGS 3000 Sales 6000 Inventory 3000 GST Payable 300 To record sale of inventory Item Debit Credit GST Payable 300 GST ITC 150 Cash 150 To record payment of GST collected less GST paid 12 8 12 Accrued Liabilities (Accrued Expenses) These are expenses that have been incurred but not recorded. Salaries and Wages Payable Interest Payable Income Taxes Payable
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25/01/2011 5 13 8 13 Payroll Liabilities Salary Expense 10,000 Employee Income Tax Payable 1,350 Canada Pension Plan Payable 320 Employment Insurance Payable 270 Employee Union Dues Payable 272 Salary Payable [take home pay] 7,788 To record salary expense 14 8 14 Unearned Revenues Air Canada sells tickets and collects cash in
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07 Liabilities - 25/01/2011 EngineeringFinanceand Economics...

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