8 current liabilities1.pptVIP

8 Current and Long-Term Liabilities Defining Liabilities What is a Liability? Distinction between debt and equity 1. Mature or not2. The providers3. Legal priority claims Classifying Liabilities Current Liabilities Payable within one year Company’s operating cycle, if longer than one year Current liabilities classified in three ways (1) Known amount (2) Estimated amount (3) Contingencies Current Liabilities of Known Amount Accounts Payable Short-Term Notes Payable Short-Term Notes Issued at Discount Advances from customers Current Portion of Long-Term Debt Dividend payable Third-party collections Accounts Payable Accounts payable are amounts owed to suppliers for products or services purchased on credit. Company A purchased an $40,000 supplies from company B on credit. Dr. supplies 40,000 Cr. Accounts Payable 40,000 Short-Term Notes Payable Note Given to Borrow from Bank Note Given to Extend Credit Period Note Given to Extend Credit Period Face Value Equals Amount Borrowed Face Value Equals Amount Borrowed End-of-Period Adjustment to Notes End-of-Period Adjustment to Notes End-of-Period Adjustment to Notes End-of-Period Adjustment to Notes Short-Term Notes Payable Issued at a Discount Entity taking the note deducts interest from amount being borrowed Remits less than note’s face value to the borrower Borrower repays face value at note’s maturity Short-Term Notes Payable Issued at a Discount On Nov. 15, 2007, Sam borrowed $10,000 from commercial bank, signed a 60-day, 9% note with face amount of $10,000 as a “discounted” note payable ... $10,000 x .09 x 60/360 = $150 total interest $10,000 - $150 = $9,850 remitted to borrower Borrower repays $10,000 face value on January 15, 2008 Short-Term Notes Payable Issued at a Discount 11/15/2007 Cash $9,850 Discount on Note Payable 150 Notes Payable, Short-Te