Chapter 7: Liabilities Flashcards
Liabilities
Obligations of the entity;
probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events
working capital loan
A short-term loan that is expected to be repaid from collections of accounts receivable.
maturity date
The date when a loan is scheduled to be repaid.
revolving line of credit
A loan on which regular payments are to be made but which can be quickly increased up to a predetermined limit as additional funds are borrowed.
note payable
A liability that arises from issuing a note; a formal promise to pay a stated amount at a stated date, usually with interest at a stated rate and sometimes secured by collateral. Can be short-term or long-term.
prime rate
The interest rate charged by banks on loans to large and most creditworthy customers; a benchmark interest rate.
discount loan
A loan on which interest is paid at the beginning of the loan period.
interest calculation—straight basis
Interest calculation in which the principal is the amount of money made available to the borrower. Principal and interest are normally repaid by the borrower at the maturity date, although interest may be paid on an interim basis as well.
annual percentage rate (APR)
The effective (true) annual interest rate on a loan.
interest calculation—discount basis
Interest calculation in which the interest (called discount) is subtracted from the principal to determine the amount of money (the proceeds) made available to the borrower. Only the principal is repaid at the maturity date because the interest is, in effect, prepaid.
interpolating
A mathematical term that describes the process of interpreting and relating two factors from a (present value) table to approximate a third factor not shown in the table.
proceeds
The amount of cash (or equivalent value) received in a transaction.
contra liability
An account that normally has a debit balance that is subtracted from a related liability on the balance sheet.
current maturity of long-term debt
Principal payments on long-term debt that are scheduled to be paid within one year of the balance sheet date.
account payable
A liability representing an amount payable to another entity, usually because of the purchase of merchandise or a service on credit.
unearned revenue (deferred credit)
A liability arising from receipt of cash before the related revenue has been earned.