Accounting Flashcards
Current liabilities
What are current liabilities?
Payables usually due within one year.
What distinguishes current liabilities from long-term liabilities?
Current liabilities are due within a year, while long-term liabilities are due in more than a year.
What are some examples of current liabilities?
- Short-term notes payable
- Accounts payable
- Sales tax payable
- Deferred revenue
- Contingent liabilities
Define short-term notes payable.
Liabilities on notes due within a year, often with interest.
How did Moon Airlines record the borrowing of $100,000 on September 1, 2020?
Dr. Cash $100,000
Cr. Note Payable $100,000
How is interest expense calculated for the note payable example?
$100,000 x 6% x 4/12
What is the journal entry for interest payable on December 31, 2020?
Dr. Interest Expense $2,000
Cr. Interest Payable $2,000
What is the total payment Moon Airlines made on March 1, 2021?
$103,000
What are accounts payable?
Liabilities from purchasing goods and services on credit.
What is the journal entry for purchasing equipment on account for $25,000?
Dr. Electrical Equipment $25,000
Cr. Account Payable $25,000
What is the sales tax payable example for a $15 purchase?
Dr. Cash $16.50
Cr. Sales Revenue $15.00
Cr. Sales Tax Payable $1.50
Why is deferred revenue considered a liability?
The service may not be delivered or the customer may cancel their order.
What is the journal entry for cash received for ticket sales before the flight?
Dr. Cash $100
Cr. Deferred Revenue $100
What are contingent liabilities?
Estimated liabilities that may arise in the future.
Provide examples of contingent liabilities.
- Lawsuit
- Liquidated damages
- Change in foreign exchange
- Change of government policies
- Warranty
- Environmental problems
- Bank guarantee
- Premium offer
What is the journal entry to record a contingent liability for a lawsuit?
Dr. Loss from the lawsuit $100 million
Cr. Contingent Liabilities $100 million
How is warranty expense recorded for estimated costs?
Dr. Warranty Expense $45,000
Cr. Warranty Liabilities $45,000
What is the journal entry when warranty claims are satisfied with costs of $12,000?
Dr. Warranty Liability $12,000
Cr. Spare Part Inventory $12,000
