Chapter11Outline

Chapter11Outline - CHAPTER REVIEW Current Liabilities 1....

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CHAPTER REVIEW Current Liabilities 1. (S.O. 1) A current liability is a debt that can reasonably be expected to be paid (1) from existing current assets or in the creation of other current liabilities, and (2) within one year or the operating cycle whichever is longer. Current liabilities include notes payable, accounts payable, unearned revenues, and accrued liabilities. Notes Payable 2. (S.O. 2) Notes payable are obligations in the form of written promissory notes that usually re- quire the borrower to pay interest. Notes due for payment within one year of the balance sheet date are usually classified as current liabilities. 3. When an interest-bearing note is issued, the assets received generally equal the face value of the note: a. During the term of the note, it is necessary to accrue interest expense. b. At maturity, Notes Payable is debited for the face value of the note and Interest Payable is debited for accrued interest. Sales Taxes Payable 4. (S.O. 3) A sales tax is expressed as a stated percentage of the sales price on goods sold to cus- tomers by a retailer. The entry by the retailer to record sales taxes is as follows: Cash. .......................................................................................... XXXX Sales. .................................................................................. XXXX Sales Taxes Payable. ......................................................... XXXX When sales taxes are not rung up separately on the cash register, receipts are divided by 100% plus the sales tax percentage to determine the sales. Wages and Salaries Payable 5. The amount of unpaid pay owed to employees is wages and salaries payable. Mandatory payroll deductions remitted to government authorities are withholding taxes, such as personal, state, and federal income taxes, social security taxes, and medicare taxes. Also, with every payroll, the em- ployer incurs liabilities to pay various payroll taxes, such as social security taxes and the state and federal unemployment taxes. 6. The payroll and payroll tax liability accounts are classified as current liabilities. Unearned Revenues 7. Unearned Revenues (advances from customers) are recorded by a debit to Cash and a credit to a current liability account identifying the source of the unearned revenue. When the revenue is earned, the unearned revenue account is debited and an earned revenue account is credited. 11-1
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Current Maturities of Long-Term Debt 8. Another item classified as a current liability is current maturities of long-term debt. Current ma- turities of long-term debt are often identified on the balance sheet as long-term debt due within one year. Financial Statement Presentation of Current Liabilities
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Chapter11Outline - CHAPTER REVIEW Current Liabilities 1....

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