Handout 11 - Students - Accounting 215 Autumn 2013...

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Accounting 215 Autumn 2013 Liabilities – Chapter 9 Current Liabilities Current liabilities are liabilities that a firm expects to satisfy with current assets. Examples - Salaries payable - Salary withholdings - Notes payable - Line of credit - Current portion of long term debt Notes Payable - Once a note is acquired, the following journal entry is recorded: Cash (+A) XX Notes Payable (+L) XX - Interest accrues over the life of the note and is calculated as: o Interest = Principal x Interest Rate x Time - The adjusting journal entry to record interest expense that is accrued but not paid is: Interest Expense (+E, -SE) YY Interest Payable (+L) YY - The journal entry to record the payment of interest that has not been accrued is: Interest Expense (+E, -SE) ZZ Cash (-A) ZZ - The journal entry to record the payment of interest that has been accrued is: Interest Payable (-L) YY Cash (-A) YY Contingencies - Contingent gain - if an existing, uncertain situation might result in a gain o Do not record contingent gains in the financial statements but may be discussed in the footnotes - Contingent liability – if an existing, uncertain situation might result in a loss o E.g. Warranty payable, lawsuits Ability to estimate Reasonably estimate Not reasonably estimate Likelihood of having to pay Probable Record liability and disclose details in footnotes Disclose information in footnotes Reasonably probable Disclose information in footnotes Disclose information in footnotes Remote No disclosure required No disclosure required
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Accounting 215 Autumn 2013 Liquidity – ability of a firm to cover its short-term obligations with short-term assets -
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Handout 11 - Students - Accounting 215 Autumn 2013...

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