Accounting 201Chapter 08 Key Words Flashcards
Acid-test ratio
Cash, current investments, and accounts receivable divided by current liabilities; measures the availability of liquid current assets to pay current liabilities.
Commercial paper
Borrowing from another company rather than from a bank.
Contingencies
Uncertain situations that can result in a gain or a loss for a company.
Contingent gain
An existing uncertain situation that might result in a gain.
Contingent liability
An existing uncertain situation that might result in a loss.
Current liabilities
Debts that, in most cases, are due within one year. However, when a company has an operating cycle of longer than a year, its current liabilities are defined by the length of the operating cycle, rather than by the length of one year.
Current portion of long-term debt
Debt that will be paid within the next year.
Current ratio
Current assets divided by current liabilities; measures the availability of current assets to pay current liabilities.
Debt covenant
An agreement between a borrower and a lender that requires that certain minimum financial measures be met or the lender can recall the debt.
FICA taxes
Based on the Federal Insurance Contribution Act; tax withheld from employees’ paychecks and matched by employers for Social Security and Medicare.
Fringe benefits
Additional employee benefits paid for by the employer.
Liability
A present responsibility to sacrifice assets in the future due to a transaction or other event that happened in the past.
Line of credit
An informal agreement that permits a company to borrow up to a prearranged limit without having to follow formal loan procedures and prepare paperwork.
Liquidity
Having sufficient cash (or other assets convertible to cash in a relatively short time) to pay currently maturing debts. Refers to a company’s ability to pay its current liabilities.
Notes payable
Written promises to repay amounts borrowed plus interest.
