Chapter 11_14

Chapter 11_14 - CURRENT LIABILITIES AND LONG-TERM...

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Unformatted text preview: CURRENT LIABILITIES AND LONG-TERM LIABILITIES Chapter 11 & 14 McGraw-Hill/Irwin Slide 2 McGraw-Hill/Irwin Slide 2 Past Present Future DEFINING LIABILITIES Because of a past event . . . Because of a past event . . . The company has a present obligation The company has a present obligation . . . For future sacrifices . . . For future sacrifices McGraw-Hill/Irwin Slide 3 McGraw-Hill/Irwin Slide 3 Expected to be paid within one year or the companys operating cycle, whichever is longer. CLASSIFYING LIABILITIES Current Liabilities Expected not to be paid within one year or the companys operating cycle, whichever is longer. Long-Term Liabilities McGraw-Hill/Irwin Slide 4 McGraw-Hill/Irwin Slide 4 KNOWN LIABILITIES Also called definitely determinable liabilities . They are set by agreements, contracts, or laws and are measurable with little uncertainty. Examples: Accounts Payable Sales Taxes Payable Unearned Revenues Short-term Notes Payable Payroll liabilities McGraw-Hill/Irwin Slide 5 McGraw-Hill/Irwin Slide 5 On May 1, 2009, A-1 Catering received $3,000 in advance for catering a wedding party to take place on July 12, 2009. UNEARNED REVENUES DR CR May 1 Cash 3,000 Unearned Revenue - Catering 3,000 To record advance payment. DR CR Jul 12 Unearned Revenue - Catering 3,000 Revenue - Catering 3,000 To recognize revenue earned. McGraw-Hill/Irwin Slide 6 McGraw-Hill/Irwin Slide 6 PROMISSORY NOTE Face Value Date after date promise to pay to the order of American Bank Nashville, TN Dollars plus interest at the annual rate of . PROMISSORY NOTE Face Value Date after date promise to pay to the order of American Bank Nashville, TN Dollars plus interest at the annual rate of . $20,000 Sept. 1, 2009 Ninety days I Twenty thousand and no/100 - - - - - - - - - - - - - - - - - 6% Jackson Smith NOTE GIVEN TO BORROW FROM BANK McGraw-Hill/Irwin Slide 7 McGraw-Hill/Irwin Slide 7 NOTE GIVEN TO BORROW FROM BANK On September 1, 2009, Jackson Smith borrows $20,000 from American Bank. The note bears interest at 6% per year. Principal and interest are due in 90 days (November 30, 2009). DR CR Sep 1 Cash 20,000 Notes payable 20,000 To record note to American Bank. McGraw-Hill/Irwin Slide 8 McGraw-Hill/Irwin Slide 8 On November 30, 2009, Smith would make the following entry: DR CR Notes payable 20,000 Interest expense 300 Cash 20,300 To record payment of note and interest $20,000 6% (90 360) = $300 NOTE GIVEN TO BORROW FROM BANK McGraw-Hill/Irwin Slide 9 McGraw-Hill/Irwin Slide 9 Note Date End of Period Maturity Date An adjusting entry is required to record Interest Expense incurred to date. An adjusting entry is required to record Interest Expense incurred to date....
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This note was uploaded on 03/12/2012 for the course BUSI 1002 taught by Professor Liu during the Winter '10 term at HKU.

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Chapter 11_14 - CURRENT LIABILITIES AND LONG-TERM...

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