Reporting and analyzing liabilities Flashcards
Accounts payable
Obligations to other for amounts owed on purchases of goods and services
Accrued liabilities
Obligations for expenses incurred that have not been paid as of the end of the current period
Deferred performance liabilities
Obligations that will be satisfied not by paying cash by instead by providing products or services to customers. Ex: customer deposits, unearned gift card revenues for retail companies, and liabilities for frequent flier miles.
Short-term interest-bearing debt
Short-term borrowings expected to mature in whole or in part during the upcoming year
Current maturities of long-term debt
Long-term borrowings that are scheduled to mature in whole or in part during the upcoming year
Debt-to-equity
Total Liabilities / Total stockholders’ equity
Times interest earned (TIE)
Earnings before interest and taxes / Interest
Net-of-discount method
When discounts are offered, the inventory purchase should be recorded at its cost. Inventory is capitalized at the net cost, assuming that the discount will be taken by the buyer.
Entry for $4,000 purchase of inventory with 1/10 n/30 terms
Inv 3960 AP 3960
Entry for when you don’t take the discount on a $4,000 purchase of inventory with 1/10 n/30 terms
AP 3960 Interest expense, discount loss 40 Cash 4000
When do you record contingent liabilities?
When the likelihood of paying is probable and the amount is estimable
Do you record a contingent liability for something that is reasonably possible?
No
How do you record warranties that are a separate performance obligation from the purchase?
As unearned
How do you record warranties that are not separate performance obligations?
A liability accrual for the warranty obligation must be made at the time of purchase
Entry for warranty
Warranty Expense Warranty Liability
How do you decrease a warranty liability?
Inventory (Replacement Parts) Warranty Liability
Interest expense
Principal x Annual Rate x Portion of Year Outstanding
