Accounting 201Chapter 08 Power Point Flashcards
What is Liability?
A present responsibility to sacrifice assetsin the future due to a transaction or other eventthat happened in the past.
What is a defines a current liability?
Current liabilities are usually, but not always, duewithin one year. Notes payable, accounts payable,and payroll liabilities are the three main categories.
If a company has an operating cycle longerthan one year, its current liabilities are defined by:
the operating cycle rather than by the length of ayear.
Current liabilities are also sometimes called?
short term liabilities.
What distinguishes between current andlong-term liabilities when reporting liabilities?
- probable future sacrifices of economicbenefits.- arising from present obligations to otherentities.- resulting from past transactions or events.
Current liabilities are payable?
within one year.
Long term liabilities are payable?
longer than one year.
Distinguishing between current and long-termliabilities helps investors and creditors assess?
Risk
Companies often prefer to report a liability aslong-term because it may cause the firm toappear?
Less Risky
Many companies list notes payable first, followedby accounts payable, and then other currentliabilities?
from largest to smallest.
oA company borrowing cash (borrower) from a bank is required to sign a note promising to repay the amount borrowed plus interest. What’s the accounting definition?
Notes Payable
The borrower reports its liability as?
Notes Payable
Small firms rely heavily on what type of financing?
short-term financing
Large companies also use short-term debt as a significant part of their?
capital structure
Prior to depositing a monthly payroll check, an employer withholds?
- Federal and state income taxes,- Social Security and Medicare,- Health, dental, disability, and life insurance premiums, and- Employee investments to retirement or savings plans.
As an employer, the costs of hiring an employee are higher than the salary. What are other significant costs?
- Federal and state unemployment taxes,- The employer portion of Social Security and Medicare,- Employer contributions for health, dental, disability, and life insurance,- Employer contributions to retirement or savings plans.
Additional current liabilities companies report:
- Unearned revenues- Sales taxes payable- The current portion of long-term debt- Deferred taxes
An existing, uncertain situation that might result in a loss is called a?
Contingent liability
What are examples of Contingent liabilities.
Lawsuits, product warranties, environmental problems, and premium offers
A contingent liability may not be a liability at all. Whether it is, depends on?
Whether an uncertain event that might result in a loss occurs or not.
As the auditor, you could choose one of three options to report the contingent liability situation:
1) report a liability for the full $100 million or for some lesser amount. 2) provide full disclosure in a financial statement footnote but not report a liability in the balance sheet. 3) provide no disclosure at all.
Accounting Treatment of ContingentLiabilities.If payment is: Probable
Liability recorded and disclosure required. Disclosure required.
Accounting Treatment of ContingentLiabilities.If payment is: Reasonably possible
Disclosure required
Accounting Treatment of ContingentLiabilities.If payment is: Remote
Disclosure not required
Liquidity refers to?
having sufficient cash to pay currently maturing debts.
Working Capital is?
It is the difference between current assets and current liabilities.
Quick assets include?
cash, short-term investments, and accounts receivable.
How do you perform the Acid-test ratio/Quick ratio?
Quick assets include cash, short-term investments, and accounts receivable.
