Chapter 13 Flashcards
Characteristics of Liabilities
Future sacrifices of economic benefits, arise from present obligations, return from the past transactions or events.
Current Liabilities
Liabilities expected to be paid by the end of a year or operating cycle.
Short term notes payable
Temporary, lower interest rates, companies have flexibility while selecting financial alternatives.
Credit Lines
an agreement to provide short term financing. Borrowed only when needed.
Comitted
Formal Agreement credit line
Noncommitted
informal agreement for a line of credit.
Secured Loans
loan made by pledging a specific asset of the borrower as collateral
Pledging AR
When AR serves as collateral
Factoring Recievables
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Commercial paper
Unsecured notes sold in minimum denomination. Quick fast money.
Accrued Liabilities
Expenses already incurred but not yet paid. Recorded by adjusting entries.
advances from customers
liabilities until the product or services are provided
Loss Contingencies
Uncertainty on whether or not there will be a potential loss depending on future event
Future event categorized:
Probable, reasonably possible, remote
When is a liability accrued
Probable, known, reasonably estimable
Disclosure only on LC
Reasonably possible and not reasonably estimable but probable
No disclosure Required
Remote across the board
Guarantee
Should be estimated and recorded as expenses in the same accounting period products are sold - Loss contingency. Must estimate total liability for the period
Expected Cash flow Approach
Measures a warrant obligation to report best estimate. Ignores TVM. Incorporated specific probabilities of cash flows into the analysis
Extended Warranty
Provides warranty protection beyond manufacturer’s original warranty. Recognition over period of warranty
Disclosure of litigation contigencies
Do not record loss until after settlement. Outcome of litigation is highly uncertain
Accrual of litigation contingencies
Subsequent events can clarify a pre-existing claims, must be made before fiscal year end
Loss contingency after fiscal year end but before financial statements
Subsequent event disclosure
Unasserted claim
is it probable? if yes, treat the claim as if it has been asserted
Gain Contingency
uncertain situation that might result in a gain. Not accrued- conservatism.
Pay-roll Liabilities
Legal required to withhold paycheck
Employees legally required to withold
Federal/state taxes, SS taxes. Witholdings
FICA
requires employer
Voluntary deductions
include union dues contrib to retirement, insurance premiums
Emploters payroll taxes
employers matching the amount of FICA taxes
Fringe Benefits
PAyment of employees insurance premiums and/or contrib to retirement plans
