Module 8- Current liabilities

Question 1

current liabilities

Answer 1

are defined as liabilities that must be paid within the next 12 moths or within the next operating cycle. (whichever is longer)
- this will be paid out with current assets or create other current liabilities

Question 2

long term liabilities

Answer 2

current liabilities that must be paid out sometime after 12 months

Question 3

clearly determinable liabilities

Answer 3

The existence of the liability and its amount are certain. Examples include liabilities like accounts payable, notes payable, interest payable, and wages payable.

Question 4

estimated liabilities

Answer 4

The existence of the liability is certain, but its amount only can be estimated (not certain). An example is estimated product warranties where the company knows that it will have warranty claims from customers.

Question 5

contingent liabilities

Answer 5

The existence of the liability is NOT certain and usually the amount is NOT certain because contingent liabilities depend (or are contingent) on some future event occurring or not occurring. Examples include liabilities arising from lawsuits, discounted notes receivable, income tax disputes, etc.

Question 6

purchase journals

Answer 6

contains only the information for purchases made on account. 
it contains:
-the date of the transaction, 
-the name of the company, 
-the invoice date, 
-credit terms, 
-the accounts payable -credit amount,  
-the purchases debit amount, and 
-the freight-in amounts.

Question 7

accounts payable

Answer 7

amounts owed to suppliers for purchases made on credit. accounts payable normally result from the purchase of goods or services and do not carry an interest charge.

Question 8

note payable

Answer 8

(Promissory note) an unconditional written promise by a borrower(maker), to pay definite sum of money to the lender(payee) on demand or on a specific date. these carry interest charge.

Question 9

notes payable include

Answer 9

Principal amount: the face value of the note
Date: issue date and maturity date
Time: the time period the note will run in days or months
Name of payee: lender
Interest rate: generally stated on an annual basis
Maker: borrower

Question 10

formula for calculating interest

Answer 10

Interest = principal x rate x time

Question 11

collecting taxes payable

Answer 11

debit cash and credit sales taxes payable.

then all the taxes are collected then the entry is debit to sales tax collected and credit to cash

Question 12

estimated product warranties payable

Answer 12

The debit is to Product Warranty Expense and the credit to Estimated Product Warranty Payable when recording estimated product warranty payables.

Question 13

contingent liabilities

Answer 13

an existing condition, situation, or set of circumstances involving uncertainty as to possible gain or loss to an enterprise that will ultimately be resolved when one or more future events occur or fail to occur.”

Question 14

3 types of contingent liabilities

Answer 14

remote
reasonably possible
probable

Question 15

remote

Answer 15

If the likelihood of the loss from a contingent liability is highly unlikely, then it is not required to be recorded on the financial statements.

Question 16

reasonably possible

Answer 16

the situation should be identified and described in the notes to the financial statements but is not required to be included on the face of the balance sheet.

Question 17

probable

Answer 17

If the likelihood of a loss from a contingent liability is likely and the amount of the loss can be reasonably estimated, then it should be recorded in the liabilities section on the balance sheet.