Chapter 13 Flashcards
Liability
Future sacrifices of economic benefit
Current Liability
Obligation payable within one year
Deferred Revenue
Where cash is received by a company in advance of it being earned
FOB Shipping Point
Title transfers when shipped, so the company records the inventory as soon as shipped
FOB Receiving Point
Title transfers when received by the company, so the company records the inventory upon receipt
Accrued Liabilities/Accrued Expenses - Vendor
Services performed by the vendor but at the end of the month the company hasn’t yet been billed by the vendor
Accrued Liabilities/Accrued Expenses - Employees
Wages that have been earned but not yet paid
JE: Accrued Liabilities at the end of the month
dr. Some expense account
cr. Accrued liabilities
the exact amount is usually not known and must be estimated
JE: actual expense amount is higher than estimate
dr. Accrued liability account
dr. Some expense account(amt of difference)
cr. cash(full amt)
CONSIDERED A CHANGE IN ACCOUNTING ESTIMATE
JE: actual expense is lower than estimate
dr. Accrued liability account
cr. some expense account(amt of difference)
cr. cash(full amt)
CONSIDERED A CHANGE IN ACCOUNTING ESTIMATE
Term Loan from a bank
principal repaid at maturity; interest paid monthly
Bonds
sold to investors by large companies. Principal repaid at maturity; interest paid semi-annually
Short-term Note Payable
less than 12 month bank loan; interest paid monthly
Commercial Paper
sold to investors by large companies in large amounts for short terms. UNSECURED. Does not have to be registered with SEC if term is less than 270 days
Line of Credit with a bank
A formal agreement with a bank to provide financing for some amount of time. Used to manage financial risk. Amounts are withdrawn if/when needed. Companies pay a monthly commitment fee
JE: Issuance of Interest-Bearing Notes
dr. cash
cr. Notes Payable
JE: Interest Expense from issuance of interest-bearing notes
dr. Interest Expense
cr. Interest Payable or Cash
JE: Payment of Interest-Bearing Note
dr. Notes Payable
dr. Interest Payable
cr. Cash
Promissory Notes
Signed for all bank borrowings; all bank borrowings and usually secured
3 Conditions for Reclassifying Current debt to Long-Term Debt
Must meet at least one of these - all after year end but before issuing financial statements:
1. Meets both of these conditions
1a. Company INTENDS to refinance the obligation
1b. Company demonstrates the ABILITY to refinance the obligation - actually doing it or obtaining a commitment from a lender
- Debt is paid off with proceeds from the sale of preferred or common stock
- Debt is paid off with the proceeds from the sale of some Long-Term Asset
JE: Short-Term obligations to be refinanced
dr. Current maturities of long term debt (to decrease it)
cr. Long-Term debt (to increase it)
JE: Payroll accrual
dr. Salary expense
cr. Salaries payable
Employee Payroll-Related Liabilities
FIT
SIT
FICA-SS
FICA-MED
Insurance
Employer Payroll-Related Liabilities
FUTA
SUTA
FICA-SS
FICA-MED
JE: Payroll Expense and Withholdings
dr. Salaries & Wages Expense(Gross)
cr. FIT withholding payable
cr. SIT withholding payable
cr. FICA-SS withholding payable
cr. FICA-MED withholding payable
cr. Insurance withholding payable
cr. Salaries payable (NET PAY)
JE: Record Payment of the Payroll
dr. Salaries Payable
cr. Cash (Net Pay)
JE: Record Payment of the Withholding Taxes
dr. FIT withholding payable
dr. SIT withholding payable
dr. FICA-SS withholding payable
dr. FICA-MED withholding payable
dr. Insurance withholding payable
cr. Cash
JE: Record Employer Payroll Taxes
dr. Payroll Taxes Expenses
cr. FUTA taxes payable
cr. SUTA taxes payable
cr. FICA taxes payable
JE: Record Payment of the Payroll Taxes
dr. FUTA taxes payable
dr. SUTA taxes payable
dr. FICA taxes payable
cr. Cash
Conditions for PTO to be accrued as an expense (any must be met)
- The employer’s obligation is attributable to employee’s services already rendered
- The obligation relates to rights that vest or accumulate - i.e. can be carried over
- Payment of the compensation is probable
- The amount can be reasonably estimated
JE: PTO Accrual Adjusting Entry(end of month)
dr. PTO or Compensated Absences Expense
cr. PTO or Compensated Absences Payable
JE: PTO taken in the following year
dr. PTO Payable
dr. PTO Expense (amount of difference)
cr. Cash
Discretionary Bonus
Someone in authority determines the bonuses
Formula-Driven Bonus
Employee and / or company must meet some benchmark, such as a specified “sales or net income increase” to earn the bonus
JE: End of year Bonus Accrual
dr. Bonus Expense
cr. Bonus Payable
JE: Payment of Bonus
dr. Bonus Payable
cr. Cash
Contingency
Some uncertainty where the outcome will be determined in the future
Gain Contingency
Not very common. Not recorded until either:
1. There is a clear declaration that the contingency has been favorably resolved and receipt is probable
2. Monies have actually been received
- Disclosed in the notes if these conditions are not met
