Chapter 9 Flashcards
Liabilities Defined and Classified
Defined as probable future sacrifice of economic benefits that arises from past transactions
Matrurity < 1 Year – current
Liabilities are recorded at their …
current cash equivalent, whcih is the chas amount a creditor would accept to settle the liability immediately (interest paid in the future is not counted here because it accrues and becomes liable with the passing of time)
Current Liabilities
- Accounted payable
- accrued Liabilities
- Deferred Revenues
- Notes Payable
Trade Accounts Payable
Obligations to pay for goodds and services used in basic operating activities of business
Accrued Expenses
obligations related to expenses that have been incurred but have not been paid at end of accounting period
Deferred Revenues / Unearned Revs
obligations arising when cash is received prior to the related rev being earned
Note Payable
obligations supported by formal written contract
Accrued Tax Payable
- Companies must pay federal taxes on the income they earn
- corporations also may pay state and local income taxes and in some cases foreign taxes
Unpaid Salaries
may be reported as part of a general accrued liability account on BS or as a separate item
Benefits
items that employees have earned during reporting period but haven’t taken or been paid (retirement, vacation)
What does Accounts Payable Turnover Measure
measures how quickly management is paying suppliers (higher better)
To provide accurate info on how much long term debt is due in current year,
a company must reclassify its long term debt as a current liability within 1 year of maturity date
Contingent Liabilities
- based on estimates because exact amount won’t be known until future (probable, reasonably probable, remote)
Working Capital Management
Working Capital = Current Assets - Current Liabilities
- A company has liquidity (current ratio + working capital) if it has the ability to pay for current obligations
- changes in working capital have direct impact on cash flows from operating activities
LT Liabilities
- Secured Debt: when creditors require the borrower to pledge specific assets as security for long term liabilities
- Unsecured Debt: when the lender relies on borrower integrity and general earning power to repay loan
IF I OWE SOMETHING IN THE FUTURE, THE AMOUNT OF THE LIABILITY TODAY IS LESS THAN THAT
