Current Liabilities and Fair Value Accounting
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| show | debts and obligations that a company expects to satisfy within one year or within its normal operating cycle, whichever is longer
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| Liabilities require... | show 🗑
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| show | recognition
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| Failure to record a liability often goes along with failure to record an expense and leads to an _________ of expense and an ________ of income. | show 🗑
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| When does GAAP require a liability to be recorded? | show 🗑
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| show | salaries payable and interest payable; taxes payable must be recognized through adjusting entries
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| On the balance sheet, a liability is generally _______ at the amount of money needed to pay the debt or reported at the _________ of the goods and services to be delivered. | show 🗑
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| show | disclose; explanatory
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| Disclosure of the fair value and the basis for estimating the fair value of short-term notes payable, loans payable, and other short term debts are ______ unless it is not practical to estimate the value. | show 🗑
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| show | Allows a company to borrow funds when they are needed to finance current operations. Unused lines of credit allow a company to borrow on short notice up to the credit limit, with little or no negotiation.
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| A company incurs current ______ to meet its needs for cash during the operating cycle. | show 🗑
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| Liabilities fall into two major groups: | show 🗑
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| show | current liabilities that are set by contract or statute and that can be measured exactly
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| The objective in accounting for definitely determinable liabilities are to: | show 🗑
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| The most common definitely determinable liabilities are: | show 🗑
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| Accounts payable | show 🗑
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| show | short-term notes payable are represented by promissory notes which are written agreements to pay according to certain terms. Bank loans, pay suppliers for goods and services,or secure credit from other sources are examples.
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| Commercial paper: | show 🗑
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| Only the used portion of a line of credit is recognized as a _______ in the _______ ___________. | show 🗑
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| The portion of the line of credit currently used and amount of commercial paper issued are usually combined with ______ _______. | show 🗑
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| show | recognize liabilities that are not already in the accounting records; accrued liabilities can include estimated liabilities
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| show | accrued liability. Interest accrues daily on interest bearing notes. An adjusting entry is made at the end of each period to record the interest obligation up to that point.
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| Dividends Payable | show 🗑
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| Sales and Excise Taxes Payable | show 🗑
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| show | The portion of long-term debt that is due within the next year and is to be paid from current assets is classified as a current liability; no journal entry required; total debt is reclassified as short-term and long-term in financial statements
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| payroll liabilities | show 🗑
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| show | compensation of employees at an hourly rate
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| show | compensation of employees at a monthly or yearly rate
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| show | Federal unemployment insurance and state unemployment taxes
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| Unearned revenues | show 🗑
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| Estimated Liabilities | show 🗑
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| show | the computation of estimated liabilities involves some uncertainty
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| The following are examples of estimated liabilities... | show 🗑
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| show | depends on the results of a corporation's operations which are often not known until the end of the fiscal year; an adjusting entry is necessary. Sole proprietorships and partnerships do not pay income tax their owners must report income on individ taxes
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| Property taxes payable | show 🗑
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| promotional costs | show 🗑
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| product warranty liabiltiy | show 🗑
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| show | accrual accounting
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| show | vacation pay represents 4 percent of an employee's pay
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| What does FASB require companies to disclose in their financial statements? | show 🗑
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| contingent liability | show 🗑
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| Contingent liabilities involve: | show 🗑
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| When are contingencies recorded? | show 🗑
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| show | is a legal obligation that does not meet the technical requirements for recognition as a liability and so is not recorded
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| fair value | show 🗑
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| FASB identifies three approaches to the measurement of fair value: | show 🗑
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| show | refers to the cost or benefits of holding or not holding money over time
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| interest | show 🗑
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| future value | show 🗑
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| show | is the interest cost for one or more periods when the principal sum- the amount on which interest is computed-stays the same from period to period
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| show | is the interest cost for two or more periods when, after each period, the interest earned in that period is added to the amount on which interest is computed in future periods
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| why is compound interest is useful in business? | show 🗑
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| show | is the amount that must be invested today at a given rate of interest to produce a given future value; thus, present value and future value are closely related
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| show | value of potential investments
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| show | the annual rate divided by the number of periods in a year
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| show | widely
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| show | an asset is something that will provide future benefits to the company that owns it. Purchase price of an asset represents the present value of those future benefits.
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| show | to encourage buyers to make a purchase, sellers sometimes agree to defer payments for a sale. Common among companies that sell ag equipment to farmers who need new equip. in the spring but cannot pay until the fall
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| show | current liabilities on the balance sheet and revenues and expenses on the income statement
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| show | to meet its needs for cash during the operating cycle
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| show | is the amount of time it takes to purchase inventory, sell inventory, and collect the resulting receivable
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| show | working capital= current assets- current liabilities; current ratio= current assets divided by current liabilities
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| Payables Turnover | show 🗑
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| show | shows how long, on average, a company takes to pay its accounts payable
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krystalamber04
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